Skip to main content

Full text of "Product liability : final report of the industry study"

See other formats




C / vvA / ■' 



Interagency 

Task Force 
on 

Product 
Liability 



PB 265 542 




Ki 




PRODUCT LIABILITY: 

Final Report of the 

Industry Study — Volume I 

ITFPL-77/04 



UNDER DIRECTION OF 

U.S. DEPARTMENT 

OF 

COMMERCE 



KTui 




U.S. DEPARTMENT OF COMMERCE 
National Technical Information Service 

5285 Port Royal Road 
Springfield, VA 22161 



BIBLIOGRAPHIC DATA 
SHEET 



1 . Report No. 

ITFPL-77/04-V-I 



4. Title and Subtitle 



PRODUCT LIABILITY: INDUSTRY STUDY: Volume I 



3. Recipient's Accession No. 

PB-265 542-Vol. I 



5. Report Date 



6 - April, 77 date 
of completion 



7. Author(s) 

Gordon Associates , Inc 



8. Performing Organization Rept. 
No. 



9. Performing Organization Name and Address 

Gordon Associates, Inc. 
1835 "K" Street, N.W. 
Washington, D.C. 20005 



Interagency 
Task Force 



10. Project/Task/Work Unit No. 

On Product Liability 



11. Contract/Grant No. 

6-36244 



12. Sponsoring Organization Name and Address 

U.S. Department of Commerce 

Interagency Task Force on Product Liability 

Room 5412 Washington, D.C. 20230 



13. Type of Report & Period 
Covered Final 

Industry Study 



14. 



15. Supplementary Notes Tni S report is the basis for Sections 3 and 4 of the 
Final Report of the Interagency Task Force on Product Liability. 



16. Abstracts Nationwide telephone survey of 337 manufacturers * 

Analysis of results of product liability surveys conducted by 
20 national trade associations. Findings cover information on: 

1. Changes and impacts of the costs of product liability coverage 

2. Risk assumption, deductibles and self-insurance levels. 

3. Claims experience. 

4. Damages sought and settlements paid. 

5. Product safety and preventive programs. 

6. Remedies 

* Industrial machinery, grinding wheels, castings, industrial chemicals, 
automotive components, medical devices, and pharmaceuticals. 



a. 
o 



o 

o 
a 
« 



17. Key Words and Document Analysis. 17a. Descriptors 

Product Liability 

Product Safety & Preventive Programs 

Deductibles or Self-retention levels 

Self- insurance 

Claims experience 

Damages sought 

Settlements paid 

Primary Coverage 

"Umbrella" Coverage 

17b. Identifiers/Open-Ended Terms 

Product Liability 



17c. COSATI Field/Group 



REPRODUCED BY 

NATIONAL TECHNICAL 
INFORMATION SERVICE 

U. S. DEPARTMENT OF COMMERCE 
SPRINGFIFLD, VA. 22161 



Court judgments 
Large Firms 
Medium-size Firms 
Small Firms 

Anonymous Product Exposure 
Contingent Product Exposure 
Direct Exposure 
"Going Bare" 
Potential Remedies 
-Workers Compensation modi- 
fication 
-Safety certification of 

products 
-Mandatory provision of 
Product Liability prevention 
services 
-Financial arrangements for 
limiting liability 



18. Availability Statement 

No Restriction on Distribution 



19. Security Class (This 
Report) 

UNCLASSIFIED 



20. Security Class (This 
UNCLASSIFIED 



21. No. of Pages 

2 volumes i 



22. Price 



FORM NTIS-3S 1REV. 10-73) 



ENDORSED BY ANSI AND UNESCO. 



THIS FORM MAY BE REPRODUCED 



USCOMM-DC 6265-P74 



Interagency 
Task Force 
on 

Product 

Liability 

INDEX TO TASK FORCE REPORTS 



ITFPL-77/01 



ITFPL-77/02 



ITFPL-77/03 



ITFPL-77/04 



ITFPL-77/05 



ITFPL-77 



Final Report of the Task 
Force on Product Liability 

- 2 volumes to be published 

May 1977 

Legal Study 

- 7 volumes to be published 

March 1977 
PB 263-601 
Insurance Study 

- 1 volume to be published 

March 1977 
PB 263-600 
Industry Study 

- 2 volumes to be published 

April 1977 

PB-265 9x2 

Selected Working Papers of 
The Task Force and The 
Advisory Committee on Product 
Liability. To be published 
May 1977 



Briefing Report of The Task 
Force on Product Liability 
Preliminary report published 

January 1977 
- Request N° : P.B. 262-515 



Council of Economic 
Advisers 

Department of Commerce 

Department of Health, 
Education & Welfare 

Department of Housing 
& Urban Development 

Department of Justice 

Department of Labor 

Department of 
Transportation 

Department of the 
Treasury 

Office of the Assistant 
to the President for 
Economic Affairs 

Office of Management 
& Budget 

Small Business 
Administration 



Consumer Product Safety 
Commission 



PB 265 542 



Interagency 

Task Force 
on 

Product 

Liability 



THIS STUDY PREPARED BY: 

GORDON ASSOCIATES, INC, 

UNDER CONTRACT TO 

THE U.S. DEPARTMENT OF COMMERCE 

- Contract No. 6-36244 

NOTE: 

In partial fulfillment of its charter 
to conduct a study of products liability 
problems and to make recommendations 
thereon, the Interagency Task Force on 
Product Liability, through the Department 
of Commerce, retained the services of 
independent contractors for research 
studies in the industry, insurance, and 
legal areas. 

This product liability Industry study is 
based on a contractor's research study 
prepared by Gordon Associates, Inc., and 
is released for publication to aid in a 
better understanding of the overall 
problem. 

The findings, conclusions, opinions and 
recommendations expressed herein are 
those of the contractor and do not neces- 
sarily reflect the findings, conclusions, 
opinions or recommendations of the Task 
Force which are set forth in the report 
of the Interagency Task Force on Product 
Liability. 



Council of Economic 
Advisers 

Department of Commerce 

Department of Health, 
Education & Welfare 

Department of Housing 
& Urban Development 

Department of Justice 

Department of Labor 

Department of 
Transportation 

Department of the 
Treasury 

Office of the Assistant 
to the President for 
Economic Affairs 

Office of Management 
& Budget 

Small Business 
Administration 



Consumer Product Safety 
Commission 



Product Liability Industry Study 
VOLUME 1 



VOLUME 1 
INDUSTRY STUDY 
Table of Contents 

Page 

I . SUMMARY OF FINDINGS 1-1 

Overview 1-1 

Synthesis of Findings 1-4 

Areas for Further Investigation 1-18 

II. BACKGROUND AND SCOPE OF THE STUDY II-l 

Background and Overview II-l 

Rationale and Exposure Classification 

for Products Selected for Analysis .... II-3 

Industry Studv Methodology II-6 

III. A PROFILE OF PRODUCT INJURIES III-l 

Overview and Summary III-l 

Workplace Injuries III-4 

Consumer Products Injuries 111-22 

General Aviation Injuries 111-28 

IV. MANUFACTURERS PRODUCT LIABILITY PROBLEMS AND 
EXPERIENCES — AN ASSESSMENT IV-1 

Overview and Summary IV-1 

Product Liability Industry Survey IV-15 

Trade Associations Surveys IV-62 

Selected Firm Visits IV-88 

V. A FRAMEWORK FOR ANALYSIS OF PROPOSED 

REMEDIES V-l 

Overv iew V-l 

Candidate Remedies V-2 

Description of Remedies for 

Evaluation V-5 

Criteria for Evaluating proposed 

Remed ies V-7 

Principal Remedies for Industry Studv 

Impact Analysis — Evaluation Matrix .... V-13 



Table of Contents (continued) 



VI. PRODUCT LIABILITY — AN ASSESSMENT OF REMEDIES ... VI-1 

Overview and Summary VI-1 

Workers Compensation as Exclusive Source 

of Recovery VI-8 

Safety Certification of Workplace 

Products VI- 

Developraent of Standards for Certifi- 
cation of Unregulated Consumer 
Products VI-28 

Mandatory Provision of Product Liability 
Prevention Proqrams 

Financial and Insurance Arranqements .... 

VII. A SUGGESTED PROGRAM FOR ADDITIONAL PRODUCT 
LIABILITY RESEARCH ANDD REMEDY DEVELOPMENT .... 

Introduction and Overview 

Suggested Role of Government — 

Monitoring of Product Liability 

Remedy Implementation and Research .... 
Additional Research Into Product 

Liability Experience 

Sugqestions for Investiqa tions of Other 

Potential Remedies 

ATTACHMENT A — GOVERNMENT ROLE IN STANDARD 

SETTING AND HAZARD PROTECTION A-l 



VI-33 
VI-38 


VII 


-1 


VII- 


-1 


VII- 


-3 


VII- 


-5 


VII- 


-8 



11 



VOLUME 1 
INDUSTRY STUDY 
LIST OF TABLES 

Page 

III-l Distribution of Selected Product Sources of 
Workplace Accidents Selected States f 
1974 1 1 1-8 

III-2 Distribution of Selected Product Workplace In- 
juries by Leadinq Industries, Selected 
States, 1974 111-12 

III-3 Distribution of Selected Product Closed Compen- 
sation Cases State of New York 1966-72 111-15 

III-4 Distribution of Selected Product Closed Workers 
Compensation Cases State of New York 1966- 
72 1 1 1-18 

III-5 "Worst 25" Consumer Product Injuries as Reported 
by NEISS - CPSC Calendar Year f 1975 Number 
of Injuries and Averaqe Severity 111-24 

III-6 "Worst 25" Consumer Product Injuries as Reported 
bv NEISS - CPSC Calendar Year 1975 Fre- 
auencv/Sever ity Index Values (FSI) 111-25 

III-7 Injury characteristics of Major Task Force Con- 
sumer Product Groups as Reported bv NEIS - 
CPSC Calendar Years 1973-75 111-27 

III-8 General Aviation Accidents and Incidence - 1965- 

1974 1 1 1-30 

III-9 Fractional General Aviation Injuries with Related 

Causes ". 1 1 1-31 

IV-1 Cost and Loss Experiences Factors - Telephone 

Survey Respondents by Product Cateqory IV-6 

IV-2 Cost and Loss Experiences Factors - Telephone 

Survey Respondents bv Sales Volume IV-7 

IV-3 Number of Firms in the Sample, Number of Res- 
ponses and Response Rates, by Product 
and Sales Cateqories IV-21 

IV-4 Averaqe Total Gross Sales Per Firm, bv Product 

and Sales Cateqory 1975 TV-22 

IV-5 Product Cateqory Sales as a Percent of Total 

Gross Sales, by Size Cateqory 1975 IV-24 

IV-6 Extent of Current Product Liability Coveraqe, bv 

Size Cateqory IV-25 

IV-7 Reasons for not Carryinq Product Liability In- 
surance Percent of Total Responses by 
Sales Cateqory IV-26 

IV-8 Type of Product Liability Insurance Carried by 

Firms, by Sales Cateqory IV-27 

IV-9 Type of Basic Primary Liability Coveraqe by Size 

Cateqory for Firms With Insurance Coveraqe IV-28 



in 



LIST OF TABLES (continued) 



Paqe 



IV-10 Comprehensive General Liability Coveraqe Aver- 

aqe Cost per $1,000 Sales 1971 to 1976 f 

by Size Category IV-30 

IV-11 Comprehensive General Liability Coveraqe Average 

Cost per $l f 000 in Sales, by Product and 

Size cateqories 1976 IV-31 

IV-12 Estimated Averaqe Product Liability Cost Per 

$1,000 in Total Sales under Comprehen- 
sive General Liability Plans 1971-76 IV-33 

IV-13 Estimated Averaqe Primary Product Liability Costs 

per $1,000 in Desiqnated Product cateqorv 

Sales 1971-76 IV-3 4 

IV-14 Indexes of Averaqe Year-to-Year Chanqes in Costs 

of Comprehensive General Liability Coveraqe 

1972-76, by Size Cateqorv IV-35 

IV-15 Averaqe Deductible or Self-Insurance Retention 

Levels, by Sales Cateqorv 1971-76 IV-37 

IV-16 Averaqe Limits of Liability oer Occurrence, bv 

Sales Cateqory 1971-76 IV-38 

IV-17 Averaqe Limits of Liability per Occurrence 1976, 

Combined PD/BI bv Product, and Sales Cateaorv.. IV-39 
IV-18 Restrictions on Current Product Coveraqe, by 

Size Cateqory IV-41 

IV-19 Umbrella Coveraqe Averaqe costs per $1,000, bv 

Size Cateqory 1971-76 IV-42 

IV-20 Number and Percent of Firms Reportinq anv Product 

Liability Claims, by Size Cateqorv 1971-76 IV-43 

IV-21 Averaqe Number of Pendinq Claims bv Product 

Cateqory 1971-76 IV-45 

IV-22 Averaqe Number of New claims, by Size Cateqory 

1971-76. .• IV-47 

IV-23 Averaqe Number of New Claims, by Product Cateqorv 

1971-76 IV-48 

IV-24 Averaqe Number of New Claims Per Year and Pendinq 

Claims at End of Year by Size Cateqorv for 

the Nine Specified Product Cateqories 

1971-76 IV-49 

IV-25 Averaqe Number of New Claims, by Product Cateqorv 

Nine Specified Products 1971-76 IV-50 

IV-26 Total Damaqes Souqht in Pendinq Claims, Averaqe 

Amount per Firm, by Size Cateqorv 1971-76 

(thousands of dollars) IV-52 

IV-27 Total Damaqes Souqht in New Claims, Averaqe 

Amount per Firm, by Size Cateqory 1971-76 IV-54 

IV-28 Averaqe Annual Settlement Amounts oer Firm, bv 

Size Cateqory 1971-76 IV-54 



iv 



LIST OF TABLES (continued) 

Page 

IV-30 Average Amount of Damages Paid per Claim Dropped f 

Settled, or Adjudicated by Year: 1972-76 IV-57 

IV-31 Product Safety Programs Number and Impact IV-59 

IV-32 Special Programs for Reducing Product Liability 

Claims, by Size Category IV-61 

IV-33 Special New Programs Considered to Reduce Claims, 

by Size Category IV-63 

IV-34 Summary of Trade Association Surveys: Source 

Of Statistics IV-65 

IV-35 Firm Characteristics of the Trade Association 

Survey Respondents IV-66 

IV-36 Trade Association Surveys: Number of Firms not 
Insured and Reasons for not Carrying PL 
Insurance IV-68 

IV-37 Trade Association Surveys: Median or Average 
Limits of Liability per Firm Responding 
1971 and 1976. IV-70 

IV-38 Trade Association Surveys: Number of Firms with 

Deductibles IV-71 

IV-39 Trade Association Surveys: Changes in Median 

Or Average Deductible Trends IV-71 

IV-40 Trade Association Surveys: Average Annual Per- 
centage Increases in Primary Insurance 
Costs . IV-73 

IV-41 Trade Association Surveys: Number of Firms Re- 
porting Claims IV-75 

IV-42 Trade Association Surveys: Total New Claims 

Presented 1971-75.. IV-77 

IV-43 Trade Association Surveys: Aggregated Pending 

Claims/Suits 1971-75 IV-79 

IV-44 Trade Association Surveys: Average Damages 
Sought Per Claim and Average Settle- 
ments Per Claim 1971-75 IV-80 

IV-45 Trade Association Surveys: Court Judgments as a 
Percent of Total Claims and Claims disposed 
of 1970-75(6) IV-84 

IV-46 Trade Association Surveys: Outcome of Court 

Judgments IV-85 

IV-47 Trade Association Surveys: Summary of Product 
Liability Prevention Programs and other 
Impacts IV-87 

IV-48 Trade Association surveys: Number of Firms 

Among Respondents Favoring Remedy IV-89 

IV-49 Composition of Selected Firm Discussion Sample... lv-90 

V-l Exclusive Source of Recovery Remedy Compensa- 
tion-Sole Relief Remedy V-14 

V-2 Evaluation Matrix Safety Certification Remedy.... V-15 

V-3 Evaluation Matrix for Products Liability Pre- 
vention Programs Remedy V-16 



LIST OF TABLES (continued) 



Paqe 



V-4 Evaluation Matrix for Financial and Insurance 

Arrangements V-17 

VI-1 National Machine Tool Builders Punch Press Sur- 
vey — Workers Compensation/Product Liabil- 
ity Litigation VI-12 

VI-2 National Machine Tool Builders Product Liability 
Survey — Workers Com pen sat ion/Product 
Liability Litiqation VI-15 

VI-3 Estimated Rate Chanqes for Increased Benefits 
Under Workers Compensation as Exclusive 
Source of Recovery for All Workplace 
Injuries VI-1 3 

VI-4 Estimated Rate Chanqes for Increased Benefits 
Under Workers Compensation as Exclusive 
Source of Recoverv for Product-related 
Workplace Injuries VI-18 

VI-5 Summary of Cost Impacts of Workers Compensation 
as Exclusive source of Recovery for Work- 
place Injuria^ VI-21 

VI-6 Occupational Safety Inspection and Workload Data, 

Fiscal Year 1975 VI-26 

VI-7 Estimated Impact of Certification Proqram Tar- 
qeted at Hiqh Risk Industrial Producers 
and Establishments VI-27 

VI-8 Estimates of the Economic Impact of Proposed 
Product Liability Prevention Surcharqe 
on Insurance Premiums VI-37 



VI 



CHAPTER I— SUMMARY OF FINDINGS 

OVERVIEW 

The Industry Study of Product Liability has conducted an 
assessment of the nature and maqnitude of problems encountered bv 
manufacturers of both industrial and consumer products and an 
assessment of potential remedies. The results presented in this 
report are based on a number of sources includinq the followinq: 

• An independent nationwide telephone survey of 337 
manufacturers; 

• Discussions with 20 selected firms in hiqh risk product 
cateqor ies; 

• Analysis of results of oroduct liability surveys 
conducted by 20 national trade associations or 
interested orqanizations who have collected product 
liability information; 

• Analysis of Federal and State accident data reportinq 
systems coverinq product-caused injuries in both the 
workplace and marketplace; 

• Case studies and investiqations of the standards 
development and enforcement capabilities of five Federal 
industrial and consumer products safety aqencies; 

• Actuarial analysis of the benefit and employer costs of 
major pendinq leqislation concerned with reform of 
workers compensation, a major source of industrial 
products-caused accident reparations. 



1-1 



The findinqs that are presented here reflect ttfe followinq 
major concerns of the Interaqency Task Force on Product Liability 
which quided the conduct of analysis. They are: 

• Trends in the relative cost and availability of products 
liability insurance coveraqes; 

• Recent chanqes in claims experience; 

• Extent of damaqes souqht and settlements made; 

t Current product safety and preventive measures 
undertaken by manufacturers; 

• Assessment of remedies. 

Hiqhliqhted in the findinqs are differences between small and 
larqe firms, qenerally, and the specific experience of firms in 
the product cateqories selected for detailed examination by the 
Task Force. The product cateqories examined bv the Industry 
Study included those with distinct workplace or consumer impacts. 
They were: 



Products with Workplace 
Impact 



Products with Consumer 
Imoact 



Industrial machinery, 
includinq metal cut- 
tinq, metal forminq, 
woodworkinq and tex- 
tile machinery 



Power mowers 



Automotive components 



Pharmaceuticals 



Ferrous and non-ferrous 
metal castinqs 



Medical devices 



1-2 



Products with Workplace 
Impact 



Products with Consumer 
Impact 



Industrial qrindinq 
wheels 



Aircraft components 



Industrial chemicals 

The reader should bear in mind several caveats when 
interpreting Industry Study findinqs. First , it is extremelv 
difficult to validate manufacturer estimates of product liability 
insurance costs, as insurance coveraqes are often part of some 
comprehensive proqram. Second , trade association survev data 
reflect the characteristics and views of respective memberships 
which vary considerably. Th i r d , interpretation of results amonq 
the several survey sources, both those of the Industry Study and 
the trade associations, is difficult because of differences in 
basic instrument desiqn, data qatherinq and analysis aooroaches. 
Fourth , the results presented here are not meant to be definitive 
for the whole universe of manufactured products, but rather they 
represent the experience of t-he firms in the industries or 
product cateqories surveyed. 

The first major source of information resulted from an 
independent survey of manufacturers drawn from a universe of 
firms in the nine specified workolace and consumer product 
cateqories. The survey was desiqned to provide basic information 
on trends in the cost and availability of product liability 
insurance coverage, claims histories, settlements and awards and 
the experience of manufacturers in the establishment of product 
safety and product liability prevention proqrams. 

The second major source was a collection of twenty product 
liability surveys conducted by various trade associations of 
their respective memberships. These trade association surveys 
present comparable information to that derived from the 



1-3 



independent telephone survey of manufacturers. The information 
analyzed is of two types: aqqreqate results of trade association 
surveys submitted to the Task Force; and individual responses to 
some trade association surveys submitted to the Industry Study 
for detailed processinq. While the surveys mav reflect the 
interests of their respective memberships, they do present a 
mosaic of common problems in cost and availability of insurance, 
claims or settlements, product safety proqrams and an assessment 
of possible remedies. 

A third source of complementary information was a series of 
site visits and discussions with representatives of twenty firms 
screened by respective trade associations. These firms were 
selected in accordance with a combination of sales volume and 
product cateqories criteria comparable to those used for the 
nationwide telephone survey. The primary discussion topics were: 
identification of product liability preventive proqrams and their 
impact; present financial and leaal means of controllinq or 
limitinq product liability; and an assessment of the relative 
importance of Task Force remedy proposals. 

SYNTHESIS OF FINDINGS 

This summary of Industry Study findinqs presents the 
followinq : 

• A synthesis of findinqs from the Product Liability 
Industry Telephone survey, trade association surveys and 
discussions with selected firms in hiqh risk product 
cateqories; 

• A profile of product-caused accidents derived from 
Federal and State industrial and consumer product injury 
reportinq systems; 



1-4 



• An analysis of the impact and implementation 
requirements of potential remedies suqqested by the 
Industry Study; 

• Suqqested areas for future investiqation of industrial 
products liability problems, and other potential 
remedies. 

Findinqs From Product Liability 
Surveys of Manufacturers 

The followinq is a synthesis of findinqs based on results of 
the Industry Study telephone survey of selected product 
manufacturers, trade association surveys of membershios and 
discussions held with selected hiqh-risk oroduct firms. The 
findinqs cover information on: 

• Chanqes and impacts of the costs of product liability 
coveraqe; 

• Risk assumption, deductibles and self insurance levels; 

• Claims experience; 

• Damaqes souqht and settlements paid; 

• Product safety and preventive proqrams; 

• Remedies assessment. 



1-5 



Chanqes and Impacts of the 
Costs of Product Liability Coveraqe 

As evidenced by the data in both the sales volume size 
and product cateqory comparisons obtained from the 
telephone survey, the cost of product liability 
insurance coveraqe has risen dramatically for all survey 
respondents, particularly within the oast year. 
Generally, the cost of product liability insurance has 
risen by nearly 2 times, with the laraest increases 
occurrinq in the smallest sales classes — less than $2.5 
million. Cost increases in product liability insurance 
coveraqe fell most heavily on qrindinq wheels in the 
workplace product cateqory and on power mowers, 
pharmaceuticals and medical devices in the consumer 
cateqory, with medical devices havinq the hiqhest 
esimated rates for 1976. 

Trade association surveys reported annual premium cost 
increases durinq the 1974-1976 period to Be 2 to 6 times 
as hiqh as durinq the period from 1970-1974. The ranqe 
of annual increases in the last two years was from 22 to 
287 percent, in contrast to a ranqe of from to 123 
oercent in the period from 1970 to 1974. Hiqher 
percentaqe increases appear to have been associated with 
products havinq exposure with both workplace and 
professional uses — the same types of products which had 
the hiqhest increases in the telephone survey. The firm 
size differences noted in the telephone survey are also 
evident in the trade association data. 



When reportinq survey results the term small firm qenerally 
indicates a manufacturer with qross sales of less than $2.5 
million. Medium-size firms are those with qross sales between 
$2.5 million and $100 million. Larqe firms are those with sales 
in excess of $100 miljion. There are some exceptions to this 
rule in the case of trade association surveys results. These 
differences are explained in the body of the report. 



1-6 



Pisk Assumption, Deductibles and 
Self-Insurance Retention Levels 

The telephone survey shows that the number of firms with 
deductibles has increased between 1971 and 1976, bv 80 
percent for larqe firms, 130 percent for medium firms 
and 100 percent for small firms. The averaqe deductible 
or self-insurance retention level increased bv about 500 
percent in larqe firms, 110 percent in medium firms and 
decreased 44 oercent in small firms. 

Smaller and medium size firms assumed the total risk for 
product liability more frequentlv than larqe firms: In 
1976, 29 percent of small firms had no product liabilitv 
coveraae; 13 percent of medium-size firms had no 
coveraqe; while only 3 percent of the larqe firms were 
not insured. 

In the various trade association surveys, firms were 
usinq deductibles from two to six times more freauentlv 
in the 1974 to 1976 oeriod than in the orevious three 
years. Risk retention levels increased substantially in 
surveys dominated by larqe firms and tended to stay the 
same or decrease in smaller-firm dominated surveys. 

Trade association studies reoresentinq small firms 
indicated that between 4 and 21 percent of the firms 
were uninsured. Results for associations involvinq 
products not easily traceable to the manufacturer and 
consumer products had hiqher percentaqes of non-insured 
(11 to 20 percent) than those involvinq workplace 
products manufacturers (4 to 8 percent) . 



1-7 



In all studies small firms and anon*vmous product 
manufacturers qave "don't need" or "too expensive" as 
primary reasons for not insurinq. Larqe firms qave 
"self-insurance" as the main reason. 

Claims Experience 

More than half of the survey respondents (56 percent) 
reported product liability claims durinq the five-vear 
period from 1971 to 1975. The qreatest distinction is 
by size, with virtually all of the larqe firms 
respondinq (96 percent) reportinq claims, in contrast to 
less than 18 percent for small firms, i.e., those with 
less than $2.5 million in annual sales. 

The averaqe number of pendinq claims per firm has 
increased by nearly 6 times from a level of 3.5 in 1971 
to 18.9 in 1976. In qeneral, larqe firms have the 
qreatest pendinq claims frequencv - 13.8 per firm in 
1971 versus more than 65 in 1976. Small firms qenerally 
had limited numbers of claims. Consumer product 
cateqories with the larqest number of pendinq claims 
were power mowers and automobile components. 
Industrial machinerv and qrindinq wheels were hiqhest in 
the workplace product qroup. 

A siqnificant development is that the number of new 
product liability claims for telephone survev 
respondents reached an apparent plateau in the period 
from 1973 to 1975. The averaqe rate of new product 
liability claims reported by survev respondents was 11.1 
per firm in 1973, 12.2 in 1974, 11.4 per firm in 1975 
and 9.9 in 1976. The data for 1976 cover onlv about the 
first three-quarters of the year. 



1-8 



• The same qeneral trends are evident in the claims 
experience reported in several of the trade association 
surveys . 

• Amonq firms selected for discussions, traceabilitv of 
the product to the manufacturer and deqree of exoosure 
to unsupervised users (or consumers) more siqnif icantly 
affected a firm's claims exoerience and risk management 
posture than either size of firm or oroduct category. 

Damaqes Souqht and Settlements Paid 



• The averaqe amount of damaqes souqht oer firm in new 
claims increased from $476,000 in 1971 to $1.7 million in 1976. 
For larqe firms the averaqe increased from sliqhtlv less than 
$2.0 million to $7.5 million per firm in the same oeriod. 

• The averaqe amount of damaqes souqht per firm in oendinq 
claims rose from $434,000 to $3.5 million between 1971 and 
1976 for all firms respondinq to the telephone survey. For 
larqe firms, the averaqe amount souqht rose from $1.9 million 
to $13.9 million. 

• The averaqe amount of settlements paid oer firm, 
includinq court awards, increased from $12,100 in 1971 
to $28,800 in 1972, then remained at approximately the 
same level throuqh the first three Quarters of 1976. 



Product Safety and Preventive Proqrams 

• Approximately 40 percent of respondents in the telephone 
survey had developed some form of proqram directed at 



1-9 



reducing product liability claims. Larger firms were 
more inclined to have such programs than small firms. 
For those firms with programs, 70 percent of them were 
initiated before 1974. Improved auality control and 
labelinq were the most common approaches, with product 
redesign emphasized less often, primarily by large 
firms . 

f Over ten percent of firms reported exclusion of specific 
products as a restriction in their product liability 
coverage. Twenty-three firms, 7 percent of the 
telephone respondents, reported decisions to discontinue 
products in the last two years. Twenty-six firms 
decided to postpone introduction of products because of 
product liability related problems. 

• Insurance carriers' loss prevention engineers were 
reported to have made inspections during the oast two 
years in 74 percent of large firms and 54 percent of 
small firms. Recommendations for reducing claims were 
made in 42 percent of these cases, usually bearing on 
auality control and labeling. 

• Trade association surveys which were predominantly large 
firm oriented also indicated that oualitv control and 
redesign were effective preventive strategies. Consumer 
products manufacturers recognized labeling aporoaches 
and mentioned that advertising and warranty disclosure 
changes had been made. 

• Dropping products was included in 4 of the 5 surveys 
which addressed preventive programs. It received minor 
recognition in each as an unDopular, but sometimes only 
effective remedy. 



1-10 



• Selected firm discussions revealed extensive proqrams 
oriented more to safety than to claims prevention. A 
number of these firms had been active in development of 
governmental and voluntary standards for assessinq 
product safety. They have hiqh level workinq qrouos 
which are responsible for product auality, and have 
priority claims programs which are aimed at efficient 
and equitable handlinq of claims in the interest of 
goodwill and the firms* reputations. But more 
importantly, they are desiqned to feed back immediately 
to adjust the manuf actur inq processes, quality control 
measures or product enqineerinq and desiqn. 

• Quality of the product that enters the marketplace is 
assured throuqh repeated testinq alonq the line of 
manufacture in some cases and documentation of product 
condition when it leaves the place of manufacture 
throuqh test results and photoqraphs. 

• The firms interviewed also take orecautions to train the 
users and even monitor the product use. Behavioral 
research has been employed to desiqn instructions for 
use of products, and to insure that such instructions 
cannot be removed from the product. 

Remedies Assessment: Association Surveys 

• Remedies were assessed only in surveys dominated by 
larqe firms. Prominent amonq suqqested solutions was 
stronq support for a statute of limitations, and use of 
workers compensation as an exclusive source of 
reparations . 



1-11 



• Trade association surveys provided suopor.t for several 
leqal defenses, particularly, misuse and modification, 
state-of-the-art and compliance with qovernment safetv 
standards. 

• Support for limitations on damaqe awards, continqent fee 
control, and "loser pays" provisions were also qiven in 
response to several trade associations. 

Profile of Product-Caused Accidents 

Several analyses of State workers compensation. Consumer 
Product Safety Commission and Federal Aviation Administration 
accident reportinq systems present evidence that: 

• There is no aoparent trend in either the relative 
freouencv or severity of injuries amonq product 
cateqories selected by the Task Force for analysis that 
would explain the increase in claims and litiqation 
aqainst manufacturers. 

Workplace product-caused accidents 

Analysis of injury data from five State workers comoenstion 
accident reportinq systems for 1974 revealed the followinq: 

• Products desiqnated by the Task Force accounted for 4 to 
. 14 percent of all workplace accidents reported; 

• Most frequently reported Task Force-desiqnated products 
were motor vehicles, cuttinq and machine tools, 
chemicals, qrindinq wheels and woodworkinq machinery; 



1-12 



• On a relative basis, the mote severe injuries resulted 
from the use or misuse of such Task . Force^desiqnated 
products as aircraft, motor vehicles, chemicals and 
machine tools. 

Consumer product-caused accidents 

Analysis of injury data from the accident reportina systems 
of the Consumer Product Safety Commission and the Federal 
Aviation Administration revealed the followinq: 

• Only motor vehicles, amonq the five designated consumer 
product categories of the Task Force, appeared amonq the 
CPSC's "worst 25" consumer product cateqories that 
collectively accounted fox over sixty percent of all 
injuries reported to the CPSC over the period from 1973 
to 1975; 

• Task Force-desiqnated products with hiqh relative 
severity levels, as reported by the Consumer Product 
Safety Commission, included chemicals, lawn mowers and 
drugs? 

• Product related accidents in General Aviation reported 
by the Federal Aviation Administration accounted for 
less than one-third of all fatalities and two-fifths of 
minor injuries? further there was no chanqe in these 
relative shares over the eleven years from 1964 to 1975. 

. 2 
Remedies Analysis 

A variety of potential remedies to the current product 
liability problems of manufacturers of both industrial and 
consumer products were examined by the Industry Study. The ranqe 



2 
The assumptions underlyinq the analysis of these remedies, and 

the conclusions and ooinions derived therefrom, are those of the 

contractor and do not necessarily represent the conclusions of 

the Interagency Task Force on Product Liability. 

1-13 



of possible solutions within the scone of the analysis included: 
workers compensation as an exclusive source of recovery for 
workplace accidents; development of safety certification oroqrams 
for industrial and unrequlated consumer products; mandatory 
provision of product liability prevention oroqrams by insurers; 
and financial means of limitinq liability. The followinq 
summarizes the principal impacts and implementation requirements 
of potential remedies analyzed by the Industry Study. 



Workers compensation as an exclusive source 
of recovery for workplace accidents 



Impacts ; 

• Elimination of third-party recovery for additional 
damaqes and subroqation liens from workers compensation 
would result in the deflection of more than $80 Million 
annually from recoupment aqainst oroduct liability 
insurance lines. 

• Adoption of uniform equitable benefits under State 
workers compensation systems, to offset the loss of 
third-party recovery under tort law, would increase 
employer costs under workers compensation by a minimum 
of 22 to a maximum of 71 percent above current levels 
for an averaqe cost increase of $269 to $904 oer firm in 
estimated insurance premiums. 

Requirements for implementation ; 

• Elimination of subroqation and third oartv litiqation 
under workers compensation could be accomplished throuqh 
State statute within a time frame of 1-2 years followinq 
initiation. 



3 
See footnote 2, paqe 1-13 



1-14 



• Raisinq State workers compensation benefit levels to 
uniform standards would require passaqe of a Federal 
standards law? e.q., proposed Workers Compensation 
Standards Act of 1977 — U.S.H.R. Bill 2058 introduced in 
the 95th Conqress, 1st session and companion State 
statutes. This could be achieved within a time frame of 
2-4 years. 

Safety certification of industrial and 

4 
consumer products 

Impacts : 

• Establishment of an industrial or workplace safety 
certification proqram directed at hiqh risk products at 
the time of oriqinal manufacture, installation or 
subsequent resale would require the conduct of 25 r 000 
inspection and audits annually at an increased cost of 
$10 million to the Occupational Safety and Health 
Administration (OSHA) of the Department of Labor. 

• Workplace products certification would result in product 
manufacturers in hiqh risk cateqories exoendinq from 
$300 million to $3 billion for auqmentation of quality 
assurance and manufactur inq controls. This increased 
expenditure for quality auqmentation work recmires 
upwards of 150,000 additional technical specialists. 

• Consumer products safety certification impacts would be 
loqically directed at hiqh risk, unrequlated products 
not currently covered under Federal pure food and drua, 
and transportation safety laws. 



4 



See footnote 2 r Paqe 1-1 



? 



1-15 



Requirements f or implementation r 

• Establishment of a workplace Droducts safetv 
certification proqram would require amendment of the 
Occupational Safety and Health Act (OSHA) at the Federal 
level and companion State industrial safetv statutes. 
The establishment and develooment of the proposed 
proqram would reauire from 2 to 5 years to implement. 

• Implementation of a safety certification proqram for 
currently unrequlated products would require amendment 
of the Consumer Products Safety Act and the development 
of both voluntary and mandatory standards. 
Approximatelv 3 to 5 years would be required for 
development of the certification proqram. 



Mandatory provision of preventive proqram 

5 
services by insurers and self-msureds 



Impacts : 

• A premium surcharqe of 1-2 percent on product liability 
insurance would yield between $7.8 and $31.2 million 
annually for the conduct of product liability prevention 
proqram inspections and audits to control or abate 
potentially costly product exposures and losses. 

• The mandatory provision of preventive services bv 
insurers and other technical specialists, usinq the 
funds made available by the premium surcharqe, could 
provide between 19,500 and 78,000 insoections and audits 
annually with priority emphasis qoinq to small and 
medium-sized firms not currentlv served. 



5 



See footnote 2, paqe 1-13 



1-16 



Requirements for implementation ; 

• The establishment of mandatory preventive oroqrams would 
entail amendment of State industrial safety and 
insurance statutes to create central fundinq and 
monitorinq proqrams. This potential remedy would 
require between 1 to 2 years for enactment and 
development. 

Financial arranqements for limitinq liability 

Impacts: 



• Adoption of Federal accountinq and financial disclosure 
rules for valuation and writeoff of continqent 
liabilities and losses from product claims miqht offer 
siqnificant advantaqes to small to medium-sized firms 
desirinq to assume their own risks or form association 
or self-owned insurance companies. 

Requirements for implementation t 

• The establishment of Federal accountinq and financial 
disclosure rules for valuation and writeoff product 
continqent liabilities would require conduct of revenue 
impact analyses by the Treasury Deoartment, as well as 
review and comment by the Internal Revenue Service and 
Securities and Exchanqe Commission. Approximately 1-3 
years would be required for authorization and 
imDlementation of this ootential remedy. 



6 



See footnote 2, oaqe 1-13 

1-17 



AREAS FOR FURTHER INVESTIGATION 

* 

Based on the analysis of current manufacturer product 
liability problems and potential remedies, the Industry Study 
suggests several areas for further investigation and research bv 
Federal, State and private agencies. The areas for investigation 
fall into two categories: research into the underlving 
dimensions and magnitude of the product liability problem and 
investigation of the feasibility of other potential remedies. 
The suggested areas for further investigation are discussed in 
detail in Chapter VII of this report. 



1-18 



CHAPTER II. — BACKGROUND AND SCOPE OF THE STUDY 
BACKGROUND AND OVERVIEW 

Product liability problems currently facinq American manu- 
facturers have been caused by a number of recent leqal, 
technical, and economic developments. State and Federal courts 
have held manufacturers strictly liable for injuries and orooerty 
damaqe arisinq from the use of products. The cost of the 
thousands of new products introduced annually has increased as a 
result of demands for better oualitv control, performance, and 
safety by consumers. Recent underwritinq and surplus losses 
among property and casualty insurers have resulted in increases 
in basic liability premium costs, and the removal or restriction 
of insurance coveraqes for some manufacturers and distributors of 
both industrial and consumer products. 

A Department of Commerce Study identified more than nine 
major product cateqories in which the product liability problem 
was said to be acute. However, neither industrial nor insuring 
organizations could qenerate data on the followinq critical areas 
to determine the nature and extent of the problems facinq 
manufacturers and distributors of these products: 

• Number, cause, and severity of claims 

• Risk arranqements and costs of insurance for basic, 
excess, and surplus coveraqes 

• Trends in premiums 

• Impact of product liability costs on final product 
prices 



i 
U.S. Department of Commerce, Product Liability Insurance : 

Assessment of Related Problems and Issues . Washington, D.C., 

March 12, 1976. 

II-I 



• Extent of restrictions, limits and policy cancellations 

* 
by underwriters 

• Remedies undertaken and product liability prevention 
programs of manufacturers. 

Remedies for abatinq and controlling product liability 
problems confronting American industry and commerce involve such 
potential solutions as reform in basic tort law; modification of 
workers compensation benefit levels and restrictions on third- 
party litigation; the active establishment of product redesign, 
recall, and safety retrofitting programs; and self-insurance 
programs. 

The purposes of the Industry Study, in light of this 
background are to: 

• Develop data and analyze problems, trends, costs, and 
risk management arrangements for product liability in 
nine basic industrial/consumer product cateqories. 

• Specify, analyze and evaluate the feasibility, cost and 
impacts of potential remedies for controllinq product 
liability. 

• Report basic findings and recommendations to the 
Interagency Task Force for use in formulating oolicy 
options. 

The balance of this chapter will be devoted to a review of 
the rationale for selection of product categories for detailed 
analysis, the principal methodologv emDloyed in the Industrv 
Study, and an overview of the report itself. 



II-2 



RATIONALE AND EXPOSURE CLASSIFICATION FOR 
PRODUCTS SELECTED FOR ANALYSIS 

Rationale for Selection 

Accordinq to the Bureau of the Census , there are estimated to 
be in excess of 400,000 firms in the United States enqaqed in the 
manufacture of intermediate or final products. Each of these 
manufacturers is a potential tarqet for a product liability claim 
resultinq from the use of products by workers or consumers. It 
would be impractical to develop representative data for all 
products in use today. The alternative approach taken by the 
Task Force was to focus on a small number of products where the 
collection of useful statistics and insiqhts appeared practical 
within the time frame of this effort. 

The selection of the four workplace and five consumer product 
cateqories was based on insiqhts obtained from a Department of 
Commerce study of product liability insurance undertaken in the 
sprinq of 1976. The study concluded that there was a need to 
develop a better understandinq of how product characteristics, 
manufactur inq processes, requlation and standardization, 
exposure, and other factors affect product safety. The followinq 
matrix illustrates the product attributes covered by the 
selection of the nine product cateqories. 



2 
See footnote 1, paqe II-l. 



II-3 



PRODUCT CHARACTERISTICS 



Con- Inherent Larqe 

sumer Risk When Dura- Number of 
Product Used bility Products 



Externally 
Requlated 



Machine 

tools 
Pharma- 
ceuticals 
Industrial 

chemicals 
Aviation 

components 
Gr indinq 

wheels 
Castinqs 
Power mowers 
Automotive 

parts 
Medical 

devices 



X 
X 

X 



It can be seen from the matrix that the oroduct selection is 
desiqned to include products which have hiqh inherent risk and 
products which tend to have a long useful life. Furthermore, 
althouqh industrial chemicals and castinqs were of primary 
interest from a workplace standpoint, the industries involved 
also produce a wide variety of consumer products. 

The collection of more detailed representative data and 
information on these product cateqories serves to provide a basis 
for comparisons amonq products. By qrouoinq oroducts in terms of 



II-4 



attributes such as durability or inherent risk, insights can be 
qained with respect to the relative importance of these factors 
on worker/consumer injuries resultinq in product liability 
actions. 

Classification of Products 
bv Relative Exposure 

During the course of the Industry Study investigations, it 
became apparent that a most meaningful way of examininq the 
product liability problems of the selected categories was by 
their relative exposure and claims experience. Controllinq for 
the factors enumerated above, as well as prevention measures and 
claims behavior, the primary distinguishing factor was the degree 
of w traceability" or "anonymity" in the stages of final 
production and end use. The nine product categories in the 
following matrix have been further classified with respect to 
this distinction as to relative exposure. The three categories 
presented distinguish between product exposures that are 
"anonymous," "contingent," and "direct." 

Risk Exposure Category 

Anonymous* Contingent** Direct*** 



Machine tools 

Pharmaceuticals 

Industrial 
chemicals 

Aviation compo- 
nents 

Grinding wheels 

Castings 

Power mowers 



X 
X 

X 



II-5 



Anonymous* Contingent** Direct*** 

Automotive parts X 

Medical devices X 

♦Product disappears into others 

**Exposure depends on end use in workplace or orofessional 
practice and whether readilv traceable to manufacturers. 

***Product qoes to ultimate user. 



Products such as industrial chemicals have varvinq deqrees of 
traceability ranging from generic druqs that disaopear into the 
production of others, to labeled pharmaceuticals used in both 
clinic and the home. A second category of risk exDosure, 
contingent, includes products traceable to an individual 
manufacturer; however, the risk of claims is a function of the 
end use in either a workplace or orofessional practice: e.q., 
machine tools or medical devices. The third cateqory encomoasses 
broad scale direct exposure throuqh extensive use bv consumers. 
There the exposure is raised siqnif icantly by trade names and 
labelinq. Products may have multiple "exDosures" under this 
classification scheme bv virtue of the deqree of traceabilitv and 
variety of end uses in both the workplace and market place. 

INDUSTRY STUDY METHODOLOGY 

General 

The Industry Study on Product Liabilitv involved the conduct 
of a number of studies and surveys of firms and secondary data 
sources addressing issues of concern to the Task Force. These 
were: 

II-6 



• A nationwide telephone survey of 337 firms makinq 
products in the industrial cateqories desiqnated by the 
Task Force for study; 

• Analysis of 20 trade association surveys of members' 
product liability experience and problems; 

• Discussions with 20 selected manufacturers of both 
workplace and consumer products; 

• Data analysis of accident reportinq and compensation 
systems for several State workers comoensation aqencies, 
consumer product injuries reported to the Consumer 
Product Safety Commission, and qeneral aviation 
accidents reported to the Federal Aviation 
Administration; 

• Conduct of a series of case studies on product safety 
standards development and requlation by such principal 
Federal aqencies as the Occupational Safety and Health 
Administration (OSHA) , Food and Druq Administration 
(FDA) , Federal Aviation Administration (FAA) , and 
National Hiqhway Traffic Safety Administration (NHTSA) ; 

• Actuarial estimates of the impact of increased benefit 
levels on employer insurance costs which would result 
from adoption of uniform workers compensation standards 
as specified in H.P. Bill 2058 and the Federal Emplovee 
Compensation Act (FECA) . 

The followinq is a brief resume of the data and methods used 
to conduct each of the princioal surveys and studies for the 
Industry Study on Product Liability. 



II-7 



Product Liability Industry Teleohone Survev 

» 

A telephone survey of product liability problems and 
experience in industry for the desianated product areas was 
devised to supplement and auament information derived from 
similar efforts conducted bv trade associations with their 
respective membershiDs. The survey instrument was desianed to 
elicit information from individual firms on such characteristics 
as qross sales volume, product liability insurance arranqements 
and availability, cost of insurance, claims, suits and settlement 
awards, and practices concernina product liability loss 
prevention and control proqrams. 

A nationwide telephone survey was conducted with 337 
respondinq firms. The firms were eaually distributed into three 
cateqories bv size of sales and into the nine product cateqories 
selected for analysis by the Task Force. The firms were randomly 
selected usinq these criteria from a national listinq of firms 
prepared by Dun and Bradstreet, Inc. Firms selected for 
inclusion in the survey were screened for participation and upon 
their aqreement were sent copies of the survey instrument for 
development of basic data and information. Resoonses were 
handled by telephone contact with the desianated company official 
identified in the prescreeninq process. 

Trade Association Surveys 

Many trade associations contacted the Department of Commerce 
and the Task Force to receive quidance and technical assistance 
in the desiqn, conduct, and processinq of survevs of their 
respective memberships. Twenty trade associations or other 
interested orqanizations comoleted surveys of member product 
liability problems. The Industry Study staff processed and 
analyzed individual responses for seven associations, while 



II-8 



thirteen groups supplied summaries of their survey results. Most 
of the trade association surveys included Questions which were 
comparable to some of those used in the independent Product 
Liability Industry Telephone Survey. 

Discussions With Manufacturers 

Discussions were held with a group of 20 manufacturing firms 
producing a variety of workplace and consumer products. The 
discussions were intended to provide detailed information on 
product liability prevention programs and contractual and 
financial means of limiting product liability claims. In 
addition, respondents were asked to assess the potential impact 
of a variety of the remedies which have been proposed to the Task 
Force. The companies included in these discussions were selected 
after initial screening by their respective trade associations. 
Firms were selected in the product categories and size groups 
that were used to select the sample for the telephone survey. 

Analysis of Accident Reporting and Compensation Data 

Data were acquired from a variety of State and Federal 
accident reporting systems which provide information on the 
trends, characteristics, and costs of both workplace and consumer 
product accidents. Information on product sources of accidents 
included data on frequency, severity of injuries, nature and type 
of accident, industry of occurrence, and average compensation 
costs per closed case. Workplace injury data were obtained from 
the data files of the Occupational Safety and Health 
Administration (OSHA), Department of Labor, for six State workers 
compensation systems under the Supplementary Studies Program of 
the U.S. Bureau of Labor Statistics. Injury data comprising 
employer first reports of industrial accidents were derived from 
records for the States of California, Maryland, Texas, 



II-9 



Washington, and Wisconsin for the year 197*1. Tj°end data on 
closed compensation cases over the period from 1966 to 1972 were 
acquired from both published and unpublished data supplied to the 
Industry Study by the New York State Department of Labor and the 
New York State Workers Compensation Board. 

Characteristics of consumer product injuries were obtained 
from two principal sources. Reports of consumer injuries filed 
by hospital emergency rooms with the National Electronic Injury 
Surveillance System (NEISS) of the Consumer Product Safety 
Commission (CPSC) for the period from 1973 to 1975 were a primary 
source. Data on general aviation accident characteristics and 
trends were derived from tabulations of aircraft accident reports 
compiled by the Federal Aviation Administration (FAA) of the 
Department of Transportation for the period from 1964 to 1975. 

Safety Standards Development and Enforcement Case Studies 

A series of five case studies were completed covering safety 
standards development and enforcement capabilities of major 
Federal and voluntary agencies in the field of product safety. 
The objective of these case studies was to describe and assess 
the effectiveness of mandatory and voluntary standards and 
enforcement schemes; with particular attention to use of "system 
performance" and "good manufacturing practices" approaches as 
possible legal defenses. Exemplary product safety standards were 
used to guide the development of each case study for the 
following Federal product safety regulatory agencies: 
Occupational Safety and Health Administration, Department of 
Labor; Food and Drug Administration (FDA), Department of Health, 
Education, and Welfare; Consumer Product Safety Commission 
(CPSC); Federal Aviation Administration (FAA) and National 
Highway Traffic Safety Administration (NHTSA) of the Department 
of Transportation. 



11-10 



Actuarial Estimates of the Cost of Changes 
in the Workers Compensation Benefit and Employer 

Insurance Program 

To facilitate the assessment of the impact of the remedy 
suggested to the Task Force by several industry groups to make 
workers compensation the sole source of reparations for injuries 
received in workplace product accidents, an actuarial cost 
estimate was prepared. Three alternatives were specified for 
analysis. The first option assumed the adoption of uniform 
compensation standards as set forth in the proposed National 
Workers Compensation Standards Act of 1977, H.R. Bill 2058. The 
second alternative involves increasing the compensation rate 
standards proposed under H.R. 2058 for permanent total disability 
to the levels specified under the Federal Employee Compensation 
Act (FECA). The third alternative includes raising both 
permanent and total disability and schedule awards payments 
proposed under H.R. 2058 to the levels specified under the 
Federal Employee Compensation Act. 

Sources and basic data for this analysis were derived from 
State and FECA benefit levels and rates as modified by the 
proposed H.R. 2058, Workers Compensation Standards Act, the 
product liability closed claims survey results conducted by the 
American Mutual Insurance Alliance (AMIA), injury characteristics 
from the State of California and national workers compensation 
loss experience data as compiled by the National Compensation 
Insurance Council (NCIC). 



11-11 



OVERVIEW OF THE REPORT 

Chapter III presents a profile of product injuries occurring 
in both the workplace and marketplace. The comparative 
incidence, severity, trends, and compensation costs of product 
accidents are also analyzed to determine their impact on present 
product liability problems. 

Chapter IV presents an analysis of trends in products 
liaibility experience. Information presented in the discussion 
is based on analysis of data from the nationwide telephone survey 
of manufacturers in target product categories, as well as 
comparable information derived through trade association sources. 
Primary topics of discussion are trends and problems in 
manufacturer insurance coverage and cost, claims experience, 
product safety programs, and remedies undertaken to limit product 
liabilities. 

Chapter V presents a framework for analysis and selection of 
remedies, including a discussion of potential remedies analyzed 
by the Industry Study. Principal candidates include the 
following: 

• Elimination of third-party litigation under workers 
compensation, and adjustment of benefit standards; 

• Adoption of safety standards certification programs for 
industrial and unregulated consumer products; 

• Mandating the provision of product liability prevention 
services by insurers and self-insured firms; 



11-12 



• Adoption of Federal accounting and financial disclosure 
rules and tax regulations for writeoff of product-caused 
contingent liabilities and losses; 

Chapter VI presents an assessment of the impact, feasibility, 
and implementation considerations for each remedy proposal 
specified in Chapter V. 

Finally, chapter VII, presents sucerested areas for further 
investigation based on the analyses and findings presented in the 
this Study. 

An attachment and several technical appendixes have been 
provided. Attachment A, which appears following Chapter VII of 
this report, contains case studies dealing with standards 
development and enforcement capabilities of five Federal 
industrial and consumer product safety agencies. Four other 
technical appendixes appear in Volume II of the Industry Study 
Report. Appendixes A and B contain detailed tabulations of the 
Product Liability Industry Telephone Survey and the instruments 
used in data collection. Appendix C contains basic trade 
association surveys used in conducting the Industry Study 
analyses. An actuarial analysis of the benefit and employer 
insurance costs associated with proposals for making workers 
compensation the sole source of reparations for workplace product 
accidents is presented in appendix D. 



11-13 



CHAPTER III— A PROFILE OF PRODUCT INJURIES 

OVERVIEW AND SUMMARY 

Introduction 

Over ten million injuries and 100,000 fatalities occur 
annually in America s workplaces, homes, highways, and 
transportation systems based on estimates and reports prepared by 
the Bureau of Labor Statistics, Consumer Product Safety 
Commission, National Highway Traffic Safety Administration, and 
Federal Aviation Administration. While the economic and social 
costs of accidents in general ranee in the tens of billions of 
dollars annually, the present impacts of product-caused injuries 
are relatively unknown. Further, insurance reporting services 
cannot, as yet, identify the annual volume of product liability 
claims resulting from accidents and injuries. Present national 
accident reporting systems have not identified the incidence and 
characteristics of product injuries. The Consumer Product Safety 
Commission has, during the past few years, provided some insights 
into the dimension of product accidents through the development 
of its National Electronic Injury Surveillance System (NEISS). 
The Annual Survey of Work Injuries and Illnesses of the Bureau of 
Labor Statistics also provides statistics on workolace accidents. 
However, it does not uniformly identify product causes of 
workplace accidents. A similar condition exists for motor 
vehicle accident data developed by the National Highway Traffic 
Safety Administration, although this is presently beine 
corrected. The picture is somewhat better for general aviation, 
where sufficient data and details have been compiled to permit 
evaluation of the impact of product and other causes. 

To provide as complete a picture as possible of the 
dimensions of the present product liability problem, the Industry 



III-l 



Study undertook the task of compiling and analyzing available 
product-related accident and injury data from several sources. 
Information on product workplace accidents and their 
characteristics was developed from the records of several State 
workers compensation agencies — notably those of the States of 
California, Maryland, New York, Texas, Washington, and Wisconsin. 

Consumer product injuries and their characteristics were 
analyzed using detailed information prepared for the Task Force 
by the Consumer Product Safety Commission. Similar information 
on general aviation accidents was developed from the accident 
reporting systems of the Federal Aviation Administration. Taken 
together, these sources of product accident and injury data 
present a mosaic of information on the incidence, severity, 
nature, and compensation cost factors underlying the product 
liability problem. 

Summary of Major Findings 

The analysis of State workers compensation, Consumer Product 
Safety Commission, and Federal Aviation Administration accident 
reporting systems presents evidence that there is no apparent 
trend in either the relative frequency or severity of injuries 
among product categories selected by the Task Force for analysis 
Therefore, the increase in product liability claims and 
litigation against manufacturers does not appear to result from 
any increase in product-related accidents. 

Analysis of injury data from five State workers compensation 
accident reporting systems for 1 974 revealed the following: 

• Products designated by the Task Force accounted for 4 to 
14 percent of all workplace accidents reported depending 
on the state analyzed. 



III-2 



• Most frequently reported Task Force-designated products 
were motor vehicles, cutting and machine tools, 
chemicals, grinding wheels, and woodworking machinery. 

• On a relative basis, the more severe injuries resulted 
from the use or misuse of such Task Force-designated 
products as aircraft, motor vehicles, chemicals, and 
machine tools. 

Analysis of injury data from the accident reporting systems 
of the Consumer Product Safety Commission and the Federal 
Aviation Administration revealed the following: 

• Only motor vehicles, among; the five designated consumer 
product categories of the Task Force, appeared among the 
"worst 25" consumer product categories (in terms of 
frequency at accidents) that collectively accounted for 
over 60 percent of all injuries reported to the CPSC 
over the period from 1973 to 1975. 

t Task Force-desig,nated products with high relative 
severity levels, as reported by the Consumer Product 
Safety Commission included chemicals, lawnmowers, and 
drug,s. 

• Product related accidents in General Aviation as 
reported by the Federal Aviation Administration 
accounted for less than one-third of all aircraft 
related fatalities and two-fifths of minor injuries; 
further there was no change in these relative shares 
over the 11 years from 1964 to 1975. 



III-3 



WORKPLACE INJURIES 

Introduction 

Information on product workplace accidents and their 
characteristics was derived from several State workers 
compensation agencies. Characteristics of workplace accidents 
reported to these agencies permitted the identification of 
selected product sources of injuries, nature and bodily location 
of severe injuries, compensation cost, and the industry of 
occurrence. Data of this type were derived for calendar year 
197 2 * for the States of California, Texas, Maryland, Washington, 
and Wisconsin. Information compiled on similar characteristics 
of closed compensation cases over the period from 1966 to 1972 
was derived from the State of New York's Workers Compensation 
Board. The combined data on product workplace injuries permitted 
comparison of the frequency, severity, and costs among several 
key jurisdictions. 



State Workers Compensation Data and Limitations 

Data used in the this discussion were derived from two 
sources: employers' first reports of injuries filed with State 
workers compensation boards and commissions and closed 
compensation cases. The employers' reports represent reports of 
accidents and illnesses at the time of occurrence, while closed 
compensation cases represent claims adjudicated by insurance 
carriers, accident boards, and commissions in the States. The 
distinction is important, in that the preponderance of industrial 
in juries and illnesses that occur may not result in time lost 
from work or in a claim being filed . Nevertheless, these two 
sources of data on workplace injuries do provide important 
information on the source or agency involved, the nature of the 



III-4 



injury, the part of the body involved, the industry of 
occurrence, occupation, age, and sex of the injured worker. 
Because each State administers its own workers compensation 
program, the level of detail of injury reports and claims 
information captured vary considerably, along with methods for 
classifying and handling the data. Individual reporting 
requirements, together with differences in benefit and 
eligibility standards, create major difficulties in determining 
the comparability of State workers compensation injury and cost 
data. 

Employers first report data were obtained through the 
Department of Labor, OSHA-BLS Supplementary Studies Program for 
selected States in major jurisdictions of importance to the 
Industry Study on Product Liability for calendar year 1974. 
These data were coded to conform to the selected product 
categories of interest to the Task Force and special computer 
tabulations were prepared summarizing the information for each 
State. 

The Task Force designated product categories for tabulation 
and analysis with respect to employer first reports in the review 
jurisdictions. These products included those in the research 
agenda of the Task Force plus ladders. The "selected" product 
categories thus used in the following discussion are: 

• Task Force-designated Products 

Aircraft 

Castings-related products 

Chemicals 

Cutting and forming tools 

Grinders 

Grinding wheels 



III-5 



Lawnmowers 
Medical devices 
Metal castings 
Motor vehicles 
Pharmaceuticals 
Textile machinery 
Woodworking machinery 

• Other Products of Interest 

Ladders 

It should be noted, however, that sources of workplace 
injuries examined in the following discussion include other 
product categories as well as major nonproduct causes such as 
falls, physical stress, etc. 

Information on the characteristics of closed compensation 
cases was derived from records compiled by the State of New York, 
Workers Compensation Board's Division of Research and Statistics. 
The data consisted of published aggregate tabulations of injury 
agencies, nature of injury and compensation costs for cases 
closed between 1966 to 1970, and unpublished tabulations of 
comparable information for 1971 and 1972. 

Relative Incidence of Selected Product Injuries in the Workplace 

Selected product workplace accidents account for varying 
proportions of injuries reported to the workers compensation 



Power lawn mowers were not expressly selected for study by the 
Task Force, however this consumer product was analyzed by the 
contractor in a manner comparable to the eight specifically 
designated products in order to broaden the information base 
dealing with consumer product-related injuries. Since there is 
no workers compensation product classification for automotive 
components, it was necessary to use the broader classification of 
motor vehicle accidents. 

III-6 



agencies in the review jurisdictions. California has the highest 
relative proportion of selected-product injuries, 14.3 percent, 
followed by Maryland, Wisconsin and Washington with approximately 
10 percent. Texas has the lowest proportion of the group, 3.7 
percent . 

Percent of Total Workplace Injuries Related to 

Selected Products 



Percentage of 

Review Jurisdictions, 1974 Injuries Reported 

California 14. 3 

Texas 3.7 

Maryland 9.4 

Washington 9.5 

Wisconsin 9.9 



Source: Table III-1. 

The major selected-product causes of workplace injuries, as 
indicated in table III-1 are motor vehicles, chemicals, cutting 
and forming tools, ladders, woodworking machinery, and grinding 
wheels. Motor vehicle injuries accounted for less than 1.9 
percent of workplace accidents reported in Texas, in contrast to 
more than 7.3 percent in California. Cutting and machine tool 
product injuries generally accounted for approximately 3 to 4 
percent of all accident reports filed with State workers 
compensation agencies in California, Washington, and Wisconsin. 
Work injuries due to chemical products comprised approximately 1 
percent of work injuries in all five review jurisdictions. 



III-7 









4J 














c 

4> 

o 


•h r- o 


o co m cm ^ in 


•fl- i-l T» CM O 


(NO 






OOOOOOOOCM 


O O O ** O 


oo 




c 


Vj 


en 






o 




•H 


41 








i-H 




(0 


a 










10 




c 












4J 




o 












c 




o 


VJ 


rnom 


OflHHVH 


00 Cn 00 f-H 00 


00 CO 


<D 




CO 


4> 


o e'- 


tt i-i on o tn cm 


r-H oo CM en CO 


VO CO 


'V 




•H 


JQ 


en o 


M- r» co m vo 


vo m i— i 


CM «* 


•H 




s 


E 


Mi » 


*■ 


* 


•■ 


c 






3 


<M rH 


CO 


VC 


r- 


u 






Z 


CO 






*r 


< 








rH 






f-H 


4> 






4J 










V 






c 


1/1HO 


I cm o cm co on 


1 CO T rH O 


1 o 


K 




c 


4> 






• • • • 


• 


f\ 




o 


U 


© iH O 


o o o O CO 


o o r*> o 


o 


D 




4J 


u 


en 






o 


.* 




0> 


41 








t-i 


Vl 




c 


IX 










O 




••H 












£ 




£ 














(A 


u 


VO *T CM 


1 O CM CM cm on 


I oo m in co 


1 m 


vm| 


(0 


4> 


t-i o 


C-H ICOlH 


i-l CO rH i-l 


in 


o| 


£ X 


VO •»• 


V 


i-H ^H i-H 


o 






£ 


»• 


*■ 


* 


»■ 


n 






3 


CM 


t-i 


i-H 


VO 


4) 






Z 


CO 






CO 


U 
















Vi 
















D 






4-> 










O 


«r 




c 


vo VO 1 


O 1 1 loo 


1 i-H in cm o 


• o 


to 


r^ 




4) 


• • 


• • • 


• • • • 


• 


an 




CJ 


O rH 


o o o 


o o P~ o 


o 


■w 


■H 


TJ 


U 


On 






o 


u 




C 


41 








l-i 


D 


■" 


fl) 


Cu 










■o 


w 


iH 












o 


<D 


>i 






CO 






v> 


r*- 1 


Vl 


Vi 


<Tl CM | 


O I 1 1 CM 


1 r» co in t-H 


1 CM 


& 


10 


ra 


4) 


CO CM 


** 


O CO CM 


*»• 


■U 


as 


X) 


00 ID 




v on 


00 


T 


to 




e 


* * 




* 


^ 


« 






a 


vo i-t 




VO 


m 


4U 


T3 




z 


CO 






en 


O 


t> 














01 


-u 














rrl 


o 




■u 










co 


4) 

■H 




c 

4> 

U 


CO 00 o 


OrlOONO 


O r-H I eft rH 


i-HO 




vo o o 


o o o q o o 


O O rH O 


OO 


sr 




VI 


(Ti 






o 


to 


4) 








i-H 




10 


&. 










c 




X 












o 




4) 


u 


co r» oo 


CM in ^ CM .-I 


in o 1 co oo 


VOO 


•H 




H 


4) 


CO CO 


00 i-l 00 vc 


cm en en vo 


en cm 


4v> 






XI 


r- vo 


rH 00 


in 


00 


D 






e 


» 


CM 


«. 


»■ 


X 






3 


o 




t-i 


CO 


•*H 






z 


00 






00 


U 
















4J 
















10 






4-> 










-w 

o 

1 






c 

4) 
O 


r» o o 


OHHlTIHO 


f~ CO VO CO CM 


CM O 




10 


uo i-i o 


o o o o O CO 


o o o r- o 


o o 


1 


•H 


Ij 


00 






o 


• 


c 


4) 








i-H 


iH 


u 


(X 










1 


o 












M 


M-i 












l-l 


•i-l 


Vi 


o «r co 


on in co cm o r- 






►H 


rH 


4> 


m 00 rH 


i-h cm r— vo p» r- 


icnof co 


T 00 




(0 


XI 


r-inn 


l-H CO CO CM CO O 


in co o i-h en 


CO O 


M 


u 


£ 


«. •* 


ft. * 


r- on vo r» «• 


VOi-H 


►J 




3 


O CM 


i-l 00 


* » «. 


»■ 


CO 




Z 


CO 




i-h i-h cn 


en 


<: 






CM 




t-i 


VO 


H 














CM 



Cfl 

c 



10 CO 
4> f-H 
U (0 



4) CO Q 3 
CT fH 4) 

< <0 fH U 

o m ic 

••HOE 

e 



II) CJ H 

CT4-> 4) 

C <0 4) 

-fH rH £ 

■u 4> 5 

(0 OS 
10 

u 



c 

•H 

E 
u 
O 



•h m 



u 

4) „ 

£ 4) "D «3 

O u s o. 



I IT to 

cr c ij cr cfl 

C -H 4) C i-H 

rH -H T3 >0 tH O 

10 •»-> C C -P O 

JJ (0 -H -H 4-> H 

4) <0 »j U 3 

Z O O O U 



x: vi 
u 4) 

<o c 

z -h 

X. 
cr O 
C (0 

-< s 



J3 

4) -U 

Vj <p (0 > VM 

Ohm (0 

3 'H (i u u 

■O «"T O O 

O 4) (0 O 



CO 

I-l 

41 

> 
O 

c < 

(0 O 



StHJi:< .J H 



jc 




o 




3 




CO 




«. 




CO 




4> 




CO 




3 




<a 




o 




4J 




u 


• 


3 


«» 


TJ 


r» 


O 


cn 


u 


rH 


a 




c 


»■ 


o 


CO 


c 


c 




o 


CO 


•H 


« 


.u 




o 


fH 


•«H 


rH 


TJ 


4) 


CO 


s 


•H 




VI 


to 


3 


(0 


•r-» 


•> 


2 


4> 


4) 


o 


•H 


u 


> 


o 


4> 


Eb 


Vi 


^e 


•o 


CO 


4> 


(0 


JJ 


Eh 


O 




4> 


4> 


fH 


£ 


4) 


4J 


(A 


>l 


• 


X) 


>i 




Vl 


to 


3 


•H 


i-i 


CO 


C 


>l 


•H 


fH 




to 


VM 


c 


o 


(0 






CO 


M 


•u 


o 


Vl 


VM 


a 


"D 


4) 


4> 


VI 


4J 




o 


4-> 


4) 


CO 


rH 


Vl 


4) 


•H 


CO 


VM 


4J 


Vl 


O 


41 


c 


Sn 




O 


co 


iH 


4i 


a 


•H 


E 


VI 


4) 


o 




IT 


VM 


4> 


O 


U 




10 


co 


o • 


c 


o 


o 


iJ 4-> 


-H 


U 4> 


44 


3 


<0 


■o - 


fH 


O CO 


3 


UH 


XI 


Q.fH 


(0 


<0 


4-> 


UH 




Vl 


•D 


4t - 


4> 


x; c 


JC 


4J-H 


CO 


o <o 


•fH 


Vl 


F-» 


4J 


X) 


co to 


3 


4) 


a 


•OrH 


c 


3 <0 


9 


rH O 




O-H 




c to 


•• 


M >< 


4) 


t-i JC 


U 


a 


VI 




3 


CO 


O 


« 


CO 



III-8 



Major Selected-Product Sources of Workplace Injuries 

Review Jurisdictions 
Percent of All I n ,i u r i e s Reported 



State 

California 

Texas 

Maryland 

Washington 

Wisconsin 



Other 
Motor Cutting and Specified 

Vehicles Machine Tools Chemicals Products 



7.3 


3.0 


1.0 


3.0 


1.9 


.3 


.8 


0.7 


7.2 


— 


1.6 


0.6 


3.1 


3.9 


1.1 


1.4 


4.2 


2.5 


.7 


2.5 



Source: Table III-1 . 

Nature of Selected Product Workplace Injuries 

One indicator of the severity of injuries is their nature, 
that is, whether they involve significant trauma or occupational 
disease exposure. Each of the review jurisdictions coded such 
information from accident reports submitted by employers. 
Generally, injuries involving amputations, fractures, burns and 
scalds, and occupational diseases create claims for more costly 

permanent disability and scheduled awards for loss of limbs or 

2 
bodily functions involving significant physical impairment. The 

following are general findings from the analysis of the severity 

of selected product workplace injuries. 

Injuries involving cutting and machine tools, woodworking 
machinery, and grinding wheels have relative greater incidence of 
serious physical impairment as represented by amputations and 



The terms amputation, fracture, burns, strains, etc. are defined 
and used by the various State workers compensation aerencies and 
are not necessarily uniform from State to State. 



III-9 



fractures. For example, approximately 12 and *10 percent, 
respectively, of cutting and forming; tools accidents in 
Wisconsin and Washington involved amputations. In the case of 
woodworking machinery injuries in the State of Wisconsin, 
amputations accounted for one in five injuries? — -22.2 percent. 

Over one-half to four-fifths of chemical products injuries 
reported in the review jurisdictions entailed burns and scalds 
and exposures to occupational diseases. Maryland and California 
had the highest levels of chemical injuries attributable to 
occupational diseases--42.2 and 35.9 percent, respectively. 
Wisconsin and Texas cited burns and scalds, with 52.3 and 46.2 
percent, respectively, as major types of chemical injuries. 

Strains and sprains comprised the bulk of ladder workplace 
injuries in most of the review jurisdictions. In California over 
three^fifths (61.8 percent) of ladder accidents involved this 
type of injury; for the State of Washington the level was 52.6 
percent of all ladder injuries. 

The majority of motor vehicle accidents reported by the 
review jurisdictions involved three kinds of injuries — strains 
and sprains, fractures, and cuts and bruises. In California and 
Wisconsin, cuts and bruises, strains, and sprains and fractures 
comprised over 76.4 percent and 62.2 percent, respectively, of 
all reported motor vehicle workplace injuries. By contrast, 
these three types of injuries accounted for less than half of all 
reported motor vehicle workplace injuries in both Maryland and 
Texas . 

Industry of Occurrence 

One means of isolating the impact of product workplace 
injuries is to determine the industries in which they occurred. 



111-10 



Information on the top five industries of occurrence is displayed 
in table III-2, for each of the major selected product workplace 
injuries in the five review jurisdictions. In general, the top 
five industries accounted for one-third to over four-fifths of 
selected-product workplace injuries within a state. 

For motor vehicle accidents, the leading industries reported 
by the five review jurisdictions were State and local government, 
transportation, auto dealers, service stations, and wholesale 
trade. The range of concentration of motor vehicles injuries in 
these industry groups was less than 30.8 percent for Texas as 
against 48 percent for the State of Washington. In the latter 
case, farming and logging represented over 12.8 percent of motor 
vehicle injuries (see table III-2). 

Cutting and machine tool injuries in California and Wisconsin 
appeared more frequently in primary and fabricated metals 
products, machine tools manufacturing, lumber and wood products, 
and rubber and plastic products manufacturing. In the instance 
of the State of Washington, basic forest products industries, 
sawmills, and food processing comprised the bulk of such injuries 
(see table III-2) . 

Chemical injuries varied considerably by State. In 
California, Maryland, and Texas chemicals and allied products, 
electrical equipment and supplies, food and kindred products, 
special trade construction, and oil and gas extraction accounted 
for nearly two-fifths of reported chemical injuries. In 
Wisconsin, chemical injuries were predominant among food and 
kindred products, and machinery and fabricated metals products 
industries. For the State of Washington, more than 54.1 percent 
of chemical injuries occurred among auto dealers and service 
stations, smelting and lead manufacturing, construction, food 
processing, and farming (see table III-2). 



III-ll 



TABLE III-2. — Distribution of Selected Product Workolace Injuries 
by Leafllng lnddStrTe'S , Selected St&teg , 1SJ /4 « ; 

Rank By Industry 
Selected Product Categories Total First Second Third Fourth Fifth Subtotal 

Motor Vehicles 

California (SIC)l 

Number 
Percent 

Maryland (SIC) 
Number 
Percent 

Wisconsin (SIC) 

Number 
Percent 

Texas (SIC) 
Number 
Percent 

Washinqton (IC) 
Number 
Percent 

Cutting ^ Machine Tools 
Cal ifo r nTa (SIC) 
Number 
Percent 

Wisconsin (SIC) 
Number 
Percent 

Washinqton (IC) 

Number 
Percent 

Chem icals 

Cal ifornia (SIC) 
Number 
Percent 

Maryland (SIC) 

Number 
Percent 

Wisconsin (SIC) 

Number 
Percent 

Texas (SIC) 

Number 
Percent 

washinqton (IC) 
Number 
Percent 

Ladders 

California (SIC) 

Number 
percent 

Wisconsin (SIC) 
Number 
Percent 

Maryland (SIC) 

Number 
Percent 

Washinqton (IC) 
Number 
Percent 



19,774 
100.0 


94 

2,958 
15.0 


42 

1,528 

7.8 


50 

1,526 

7.7 


55 

1,450 

7.4 


1 

1,370 

6.9 


8,832 
44.8 


6,925 
100.0 


93 

1,365 

19.7 


50 
432 
6.2 


42 
396 
5.7 


55 
394 
5.7 


92 
391 
5.6 


2,978 

43.0 


6,191 
100.0 


93 

1,114 

18.0 


42 

949 

15.3 


50 
475 
7.7 


55 
473 
7.6 


20 
310 
5.0 


3,321 

53.6 


55 
1,593 
100.0 


42 
128 
8.0 


50 
113 
7.1 


75 
100 
6.3 


75 

75 

4.7 


75 
4.7 


491 
30.8 


1,115 


34 
172 


11 
166 


48 
79 


50 
63 


49 
59 


539 


100.0 


15.4 


14.9 


7.1 


5.7 


5.3 


48.3 


8,077 
100.0 


34 

1,044 

12.9 


35 

978 

12.1 


56 
654 
8.1 


54 
549 
6.8 


30 
534 
6.6 


3,759 
46.5 


3,621 
100.0 


35 

874 

24.1 


34 

440 

12.2 


24 
298 
8.2 


33 
220 
6.1 


36 
206 
5.7 


2,038 
56.3 


1,419 
100.0 


50 

288 

20.3 


10 

172 

12.1 


29 

152 

10.7 


34 

149 

10.5 


39 

148 
10.4 


909 
64.0 


2,584 
100.0 


36 

438 

17.0 


28 
180 
7.0 


28 
175 
6.8 


34 
171 
6.6 


94 
160 
6.2 


1,124 
43.5 


1,522 
100.0 


28 

257 

16.9 


93 
143 
9.4 


92 

87 

5.7 


36 

77 

5.1 


17 

76 

5.0 


640 
42.0 


1,067 
100.0 


20 

131 

12.2 


35 
102 
9.5 


92 

91 

8.5 


34 

85 

7.9 


93 
68 

6.3 


477 
44.3 


637 

100.0 


13 

70 

11.0 


28 

48 

7.4 


17 

45 

7.1 


99 

43 

6.8 


15 

38 

6.0 


244 
38.3 


401 
100.0 


34 

76 

19.0 


18 

46 

11.5 


5 

35 

8.7 


39 

34 

8.5 


48 

26 

6.5 


217 
54.1 


1,600 
100.0 


94 

227 

14.2 


17 

165 

10.3 


1 
147 
9.2 


20 

79 

4.9 


53 

73 

4.6 


691 
43.1 


528 
100.0 


17 

108 

20.5 


15 

41 

7.8 


93 

41 

7.8 


92 
27 

5.1 


35 
25 

4.7 


242 

45.8 


433 

100.0 


17 

77 

17.8 


93 

59 

13.6 


15 

54 

12.5 


50 

22 

5.1 


54 

16 

3.7 


228 
52.7 


135 
100.0 


5 

25 

18.5 


48 

17 

12.6 


34 

16 

11.9 


3 

10 

7.4 


6 

10 

7.4 


78 
57.8 



111-12 



Selected Product Categories Total 



Rank By Industry 
First Second Third Fourth Fifth Subtotal 



Woodworking Machinery 
California (SIC) 

Number 
Percent 

Wisconsin (SIC) 

Number 
Percent 

Grinding Wheels 
Cal ifornia (SIC) 
Number 
Percent 

Wisconsin (SIC) 
Number 
Percent 



Isee reference notes 
classification (IC) codes. 

Reference Notes £or Table III-2 
SIC Identification 



1,756 
100.0 


24 

453 

25.8 


25 

381 
21.7 


37 
131 
7.5 


15 

79 

4.5 


94 
73 

4.2 


1,117 
63.6 


618 
100.0 


24 

162 

26.2 


25 

79 

12.8 


15 

61 

9.9 


35 
31 

5.0 


17 

26 

4.2 


359 

58.1 


1,262 
100.0 


35 

278 

22.0 


34 

219 

17.4 


33 

139 

11.0 


37 
111 
8.8 


36 

51 

4.0 


798 
63.2 


301 
100.0 


35 

104 

34.6 


33 

99 

32.9 


34 

35 

11.6 


37 

10 

3.3 


36 



3.0 


257 
85.4 


for key 


to stand 


ard industrial classification 


(SIC) and industrial 



For California , Maryland , Wisconsin & Texas 



1. Agricultural Production 

13. Oil & Gas Extraction 

15. General Building Construction 

17. Special Trade Contractors 

20. Food and Kindred Products 

24. Lumber and Wood Products 

25. Furniture and Fixtures 

28. Chemicals and Allied Products 
30. Rubber and Plastics Products 

33. Primary Metal Industries 

34. Fabricated Metal Products 

35. Machines - Exceot Electrical 

36. Electrical Eauipment and Supplies 

37. Transportation Equipment 
42. Trucking and Warehousing 
50. Wholesale Trade 

53. Retail General Merchandise 

54. Food Stores 

55. Automobile Dealers and Service Stations 

56. Apparel and Accessory Stores 

75. Automobile Repair, Services, Garage 

92. Justice, Public Ordanance and Safety 

93. State and Local Government 

94. Government Human Resources and Public Health Agencies 
99. Non-Classified 

IC Identification ; For Washington 

3. P.H.A.C. Landscaping 

5. Construction 

6. Electrical Elevator 
10. Sawmills 

29. Wood Products Manufacturing 

30. Logging 

34. Automobile Dealers 

39. Food Processing 

48. Farming 



111-13 



Ladder injuries appeared for the most part to be concentrated 
in construction, with other significant industries including 
farming, food and kindred products, and wholesale and retail 
trades. These industries accounted for ^3.1 percent of ladder 
injuries for the State of Washington (see table III-2). 

Woodworking machinery injuries in the two review States that 
reported significant numbers of them — California and Wisconsin — 
were predominately concentrated in lumber, wood products, 
furniture and fixtures, manufacturing and construction. These 
industries accounted for 63.6 and 58.1 percent, respectively, of 
woodworking machinery accidents in California and Wisconsin (see 
table III-2). 

Grinding wheel injuries were concentrated most heavily in 
primary and fabricated metals manufacturing, machinery and 
electrical equipment, and supplies manufacturing. For 
California, these industries accounted for over 63.2 percent of 
grinding wheel injuries, while accounting for over 85.4 percent 
in Wisconsin (see table III-2). 

Extent of Compensation for Selected Product Workplace Injuries 

New York State has prepared a separate analysis of 
compensation cases, closed or adjudicated, that permit an 
examination of trends in the incidence, severity, and amounts of 
compensation over an extended period from 1966 to 1972. 

New York State Product Sources of Workers Compensation — Trends, 
Severity, and Benefit Costs 

Table III-3 presents an analysis of closed compensation cases 
by selected-product sources of accidents for the State of New 
York over the period from 1966 to 1972. In general, about one- 



111-14 



TABLE III-3. — Distribution of Selected Product Closed workers Compensation Cases 





State 


of New yoi 


k 1966-72 




Weeks 


Of 








Cases 




Compensation! 


Product Group 




1966-702 


1971 


1972 


1971 3 


1972 


Chemicals: Number 




1,868 


1,759 


1,874 


183,249 


178,140 


Percent 




1.57 


1.43 


1.54 


4.04 


3.57 


Medical Devices: Number 




2 


3 


16 


5 


78 


Percent 




- 


- 


.01 


- 


.02 


Pharmaceuticals: Number 




-3 


23 


25 


1,710 


141 


Percent 




_1 


.02 


.02 


.04 


.03 


Metal Castinqs 














and Related Machinery: 


Number 


3,128 


2,604 


2,267 


53,931 


51,117 




Percent 


2.63 


2.11 


1.86 


1.19 


1.03 


(Metal Castinqs) : Number 


(2,763) 


(2,393) 


(1,959) 


(48,716) 


(46,654) 


Percent 


( 2.52) 


( 1.94) 


( 1.61) 


( 1.07) 


( .94) 


(Related Machinery) : 


Number 


( 365) 


( 413) 


( 308) 


( 7,890) 


( 4,463) 




Percent 


( .31) 


( .34) 


( .25) 


( .17) 


( .09) 


Aircraft: Number 




147 


181 


167 


38,620 


27,258 


Percent 




.12 


.15 


.14 


.85 


.55 


Grindinq Wheels and Grinders: Number 


664 


620 


608 


12,664 


10,604 




Percent 


.56 


.50 


.50 


.28 


.21 


Selected Industrial Machinery: Number 


5,906 


4,668 


3,090 


109,458 


89,506 




Percent 4.96 


3.79 


3.35 


2.41 


1.80 


(Cuttinq and Forminq 














Mach. Tools) : Number 


(3,550) 


(2,751) 


2,280) 


(65,811) 


(53,743) 


Percent 


( 2.98) 


( 2.23) 


1.87) 


( 1.45) 


( 1.08) 


(Woodworkinq Machinery) : Number 


(1,183) 


( 945) 


906) 


(24,446) 


(19,364) 




Percent 


( .99) 


( .77) 


.74) 


( .54) 


( .39) 


(Textile Machinery) : 


Number 


(1,173) 


(1,972) 


904) 


(19,201) 


(16,399) 




Percent 


( .99) 


( .79) 


.74) 


( .42) 


I .33) 


Ladders: Number 




2,363 


2,398 


2,542 


136,535 


151,192 


Percent 




1.99 


1.95 


2.08 


3.01 


3.03 


Power Mowers: Number 




255 


225 


221 


8,132 


6,214 


Percent 




.21 


.18 


.18 


.18 


.12 


Motor Vehicles: Number 




10,962 


11,438 1 


1,268 


541,234 


559,760 


Percent 




9.21 


9.29 


9.23 


11.92 


11.22 


All Other Injury Aqents: 


Number 


93,709 


99,205 9 


8,966 


3,454,174 3 


,914,423 




Percent 


78.74 


80.57 


81.09 


76.09 


78.47 


Total : Number 




119,004 


123,124 12 


2,044 


4,539,762 4 


,988,433 


Percent 




100.0 


100.0 


100.0 


100.0 


100.0 



^Weeks of compensation were not available for 1966-70. 

^Fiqures shown for period 1966-70 are averaqes for the five years. 

^unpublished tabulations of closed workers compensation cases, 1971-72, State of New 
York Workers Compensation Board, Division of Research and Statistics. 

^There is not sufficient detail in the published 66-70 summaries for pharmaceutical 
breakdown . 

Source: Summary tabulations : Characteristics and Costs of Work Injuries in New York 
State: All Industry Report 1966-70, State of New York Department of Labor, Vol. III., 
February 1976. 



111-15 



fifth of all closed cases in New York over the 7-year period 
involved products designated for detailed study by the Task 
Force. There was no significant shift in the relative 
distribution of selected-product workplace closed compensation 
cases in New York State over the period. The leading causes of 
selected product workplace compensation claims in New York were 
motor vehicles, selected industrial machinery, metal castings, 
ladders, and chemicals, paralleling the findings from the 
analysis of other review jurisdiction injury reports. The order 
is as follows: 

Selected-Product Sources of New York Workers 
Compensation Claims 

Percent of Total Cases 
Product 1966-70 1971 1972 

Motor Vehicles 

Selected Industrial Machinery 

Metal Castings and Related Machinery 

Ladders 

Chemicals 



9.2 


9.3 


9.2 


5.0 


3.8 


3.1 


2.6 


2.1 


1.9 


2.0 


2.0 


2.1 


1.6 


1.1 


1.5 



Source: Table III-3 

A slight downward trend in the level of selected industrial 
machinery compensation claims in New York over the 7-year period 
is noted. The other leading product causes have remained 
relatively stable. 

The use of closed compensation claims data permits the 
development of information on both the extent of severity and 
comparative benefit costs. In the instance of the New York State 



111-16 



data this is indicated by the number of weeks of compensation 
awarded and the average amount provided. Unfortunately, the New 
York State data on the weeks of compensation awarded- — a proxy 
measure of severity — was available only for 1971^72, while the 
amounts of compensation provided were available in an aggregated 
form for the period 1966-70, and for single years only for 1971 
and 1972. This makes the exact determination of trends, somewhat 
difficult (see table III-4). 

As in most workers compensation jurisdictions, the weeks of 
compensation awarded is a function of statutory benefit schedules 
and the extent of disability incurred as a result of the injury. 
The amount of compensation provided is further limited by statute 
to either a maximum compensation rate, for example, two-^thirds of 
the average weekly wage in the State, or a maximum amount, say 
$300 per week. Thus, the amount of compensation provided may be 
substantially below the actual wage or economic loss experienced 
by a worker as a result of an industrial injury or illness. The 
compensation provided typically reflects medical costs of 
treating the injury or illness, as well as indemnity payments 
made on a periodic basis for economic or wage losses in 
accordance with the limits set by the statutory schedule of 
benefits and compensation rate limitations. 

A third element to be noted when examining the New York State 
Workers Compensation closed case data is that the information 
covers a wide range of types of disability ranging from temporary 
spells of a few days or weeks in duration, to those involving 
permanent partial or total disability, or those involving 
payments to survivors in the instance of fatalities. 

The average closed workers compensation case in New York 
incurred more than 37 and U1 weeks of disability in 1971 and 
1972, respectively. This is equivalent to more than two-thirds 



111-17 



cn 

C (N 

O r- 

•H <J\ 
JJ rH 
10 
CO 

c 

tl)<N 

4) C —I 

a e i» 
u o» 
u O -h 

< o 

o 
jj i-- 
c l 

3 to 
VO 

IS 



c 




V 


o 




U 


-H 

JJ 




a 


10 




4) 


(0 




a 


c 






a> 




>- 


a 




u 


fi 




JJ 


o 




10 


u 




3 
T3 


CD 




C 


l-i 




M 


41 

J* 




rH 


1-1 




.H 


O 


• 


< 


s 


c 

3 




-* 


o 


• • 


u 


TJ 


4) 


O 


Jf 


4J 


>< 


CO 


10 




41 


JJ 


3 


u 


t/1 


4> 


A 




z 




J* 




rH 


M 


tu 


■0 


O 


o 


O 

•h 


S" 


a> 


u 


3 


4-1 


3 


4) 


<0 


41 


SB 


JJ 


O 





10 




41 


10 




































































E 


•H 




u 




3 


10 
































































•* 




ij 




4' 
j«r 




41 


c 

4) 
































































CN 




CO 


to 

41 


u 




tr 


a 
































































1 




a 


rH 


O 




10 


E 
















*-, 




«■■. 














, — 




tm. 


_ . 
























rH 






IJ 


X 




u 


o 


f-i 


(N 




r« 


cn 


r» 




T 




rH 


^r 




«tr 




t 




ot 




cn 


CO 


cn 




r-t 




m 




00 




en 






r» 




u 


3 t 




41 O 


r- 






























































cn 




o 


■ro to 


TJ> 


rvi 


> 




cn 


«T 




rH 


TT 


o 




O 




CTt 


m 




o 




CN 




ro 




in 


cn 


to 




to 




r- 




f 




to 




• 


rH 




UJ 


C P- 


CD 


r- 


< 




r—t 


O 






r- 


CN 




CN1 




rH 


rH 




CN 




m 




CN 




CN 


rH 


in 




cn 




>» 




ro 




cn 




to 








M cn 


If) 


( 








rH 


















CN 








































IJ 






CO 


rH 


O 


to 


































































10 


(0 




4) 


J« 




\c 


































































0) 


41 




*H 


U >, 


(J 


<n 


































































>■ 


to 




IJ 


O u 


rH 




































































CO 




10 


S ro 


JJ 






















^ 


^ 


r«k ^-> 










































41 


o 




E 


3 


o 


J* 




JJ 


CN 


rH 


rH 


to ro 


rH Tf 


*T 


a> 


r~ 


r~ 


r^ cn 


r~ 


m 


CN 


r- 


to 


m 


r~t 


r^ 


1— 00 


00 o 


o 


CO 


CN 


in 


r~ 


ro 


CN 


CO 


r~ 


o 


> 






E 


tu u 


3 


u 


c 


C 


|-> 


rH 


r» 


o 


rH O 


rH 


rH 


o 


o 


O rH 


cn 


CN 


in 


CN 


to 


^r 


cn 


"T 


o in to ^r 


rH 


ro 


P~ rH 


»r 


r-i 


CN 


T 


o 


• 


-H 


c 




3 


O jj 


13 


o 


o 


Oi 


<n 


IC 


• 


• 


• 


Ot 


• 


VC 


■ 


ro • 


to 


• 


to 


• 


o> 


• 


in 


r 


*3* • 


cn • 


rH 


• 


ro 


■ 


rH 


• 


«T 


• 


cn 


o 


tu 


o 




in 


41 


O 


>< 


• H 


u 


I— 1 


•■ 


CN 






^ 


>~^ 


*• 


rH 












* 


CN 


•* 


rH 


•* 




r* 


ro 






r* 


r-l 


«* 


00 


«> 


o 




•H 






CO tu 


u 




jj 


u 




to 








CN 




CN 














in 




ro 




rH 




CD 








r~ 


r~t 


r-H 


1— 


m 


rH 


0) 


JJ 




o 


JJ 


a. 


s 


10 


4) 
















— ■ 


*-~ 


•^* *^ 






























CN 




cn 




•>Cf 




C 


CO 




r» 


to - 


41 


(0 


a. 






















































iH 




CN 




JJ 


at 




t 


O • 


TJ 


z 


C"^ 
































































c 




to 


O IH 


0> 




4) 


. — 
















^ 


^-, 


rr^ r% 










































U-l 


41 




to 


M 


JJ 


LU 


a 


10 


rH 


to i— 


rH | 


ID CM 


O 


KO 


CO 


m 


CN ro 


r~ 


o 


cn 


CO 


CN 


CN 


ro 


cn 


r- m cn co 


r-i 


r~ 


to 


r- 


t— 


CN 


cn cn 


r- 


o 


O 


a 






TJ M 


O 


o 


E 


- 


r~ 


CM en 




Ol O 


cn 


«T 


^r 


(N 


I-- CN 


CN 


ro 


00 


ro 


CO 


tc 


T 


r"i 


TT r~ 


cn *r 


■<T 


rH 


in 


rH 


cn 


in 


m 


ro 


CN 


• 




E 




TJ 


C 


0i 




O o 


Ov 


rH 


• 




• 


c 


• 


in 


• 


Tf • 


to 


• 


r» 


• 


T 


• 


cn 


• 


in • 


cn • 


in 


• 


m 


• 


r- 


• 


r- 


■ 


in 


o 


to 


O 




41 


10 • 


r- < 


4' 


O O 


rH 


* 


CN 






h 


rH 


•> 


~H 












» 


ro 


» 


CM 


•- 




r> 


ro 






» 


rH 


» 


to 


•. 


o 


01 


o 




-C 


rH 


41 


4-> 




o 




to 








en 




<N 














l-~ 




*T 




rH 




tc 








ro 


H 


r» 


r» 


to 


rH 


tn 






10 


10 O 


OT 


IB 


<U 


rH 
















v— 





— - *— 






























CN 




in 




o 




CO 


to 




•H 


o > 


4J 


o 


— ^ 






















































rH 




CN 




u 


u 




rH 


■H 


<u|tO 


































































V 


41 




a 


JJ •• 


o| 


JJ 


JJ 


r-1 


m 






co en 






^^ 




•r-. .M, 










































> 


JjC 




3 


to u 




C 


c 


O 


** 


r- 


00 rH 


1 1 


vo 


cr. 


ro 


cn 


m o 


in 


to 


rH 


O 


o 


O 


cn 


r^ 


ro o 


oc ro 


CN 


in 


cn oo 


r» 


*r 


CO 


rH 


o 


C 


CO 


l-i 




a 


•H O 


c 




3 


3 


1- 


ro 


rH 


rH O 




in 


vc 


O 


tr 


in cn 


to 


CN 


ON 


m 


cc 


CO 


o 


ro 


in cn 


rH in 


CO 


rH 


c 


rH 


rH 


T 


m o 


cn 


• 











>j J3 


o 




O 


o 


1 


CM 


• 


• 




00 


• 


w 


• 


^ • 


in 


• 


to 


• 


to 


• 


•cf 


r 


c • 


CN • 


rH 


• 


«cr 


• 


00 


• 


r~ 


• 


rH 


o 


41 


3 


• 


41 


4i ia 


•H 




e 


E 


to 


«. 


m 






•* 


rH 


r* 


^-t 












k. 


m 


». 


CN 


& 


■> 


*» 


CO 






» 


o 


k 


r- 


» 


o 


l-i 




CO 


-C 


jj >J 


JJ 




< 


< to 


r» 








en 




m 














00 




m 




CN 


rH 


r- 








m 


rH 


in i— 


00 


rH 


CO 


"O 


O 


JJ 


o 


D 








en 














— 


— - 


« >^ 






























CM 




r» 




CN 






41 


•H 




10 tu 


JJ 






K> rH 




















































rH 




CN 




o 


to 


JJ 


C 


w O 


•H 




































































r» 


o 


to 


-H 


■a 


u 








































to 




























1 


rH 


•H 




j= jj 


jj 


















>i 






















rH 




























to 


O 


JJ 


rH 


CJ c 


01 


















w 






















o 




























to 




CO 


•H 


41 


-H 


















4) 






















o 
































JJ 


10 


•• E 


D 


















C 






















H 




























T3 


U-l 


v> 


JJ 


(0 


JJ 


| 
















•H 


















































O 


O 




41 


c 


u 


1 
















£ 






















• 




























•H 




TJ 


t3 


o 


<0 


• 
















u 






















sz 




























1-1 




c 




■H 


a 


T 
















CO 


















>• 




o 




























01 


to 


<0 


JJ 


JJ 


s 


1 
















5E 














CO 




u 




CO 




^^ 
























o 


c 




. C 


10 


1-1 






























1-1 




4) 




s: 




>1 


























O -C 


41 


rH 




M 
















■o 














4J 




C 








U 
























01 


■H 


V 


-H 


D 


AC 


M 
















41 
JJ 














T3 

C 




-C 




c 




41 

C 
























jS 
JJ 


JJ 
10 


10 


O 
•H 


XI 





U 






O. 










CO 








«_^ 






•H 




o 




•H 






> 














to 










rH 


0i 


IM 


JJ 


Jx 


►J 






3 










rH 








>. 






U 




10 




E 




JS 


u 














JJ 








1-1 


3 


to 


U-l 




CO 






O 










0) 








M 






O 




s: 




Vj 




o 


4) 














e 








o 


£) 


0) 


3 


s* 


3 


< 






u 










IX 




r^ 




41 














O 




10 


C 














CD 








■w 


10 


££ 


10 


M 


41 


tr" 






JJ 

o 

3 






CO 


CO 


c 

CO 




CO 

c 

4J 




C 

o 

CO 






T3 

C 

to 




rH 
CO 
•H 




a. 

id 




X. 

tn 

c 


•H 

JS 

o 

10 














M 











JJ 

0) 


o 

c 


JJ 

o 

c 


(0 

£ 
E 

D 


Z 

tu 









73 






41 


rH 


to 




to 




I 






rH 




(0 




c 




JC 












to 




3 




rH 




to 


J= 


o 


CO 


« 








O 









10 


tr 




<o 










41 




3 




-H 




u 


41 










41 




•ro 




CO 






(0 


■H 


10 


JJ 








u 






•H 


O 


c 




u 




T3 






01 




"D 




JJ 




o 


rH 






to 




rH 




C 




JJ 




to 


•H 


CO 


3 


10 








P-. 






> 
2. 


•H 
JJ 


Jj 




rH 




41 
4J 






§ 




C 

1H 




3 




3 
T3 


•H 
JJ 






u 

4) 




o 

■H 




r-< 




o 




41 
u 


rH 
JJ 


■H 
> 


4) 


•• JJ 

4i cn 










CO 




3 


CO 




10 




10 














U 




O 


X 






3 




£ 




U 








3 


3 


•H 


U 


u 










rH 






41 


CO 




4J 




rH 


4J 




tr 




•o 




-^ 




O 


41 






o 




4) 




0> 








IT 


aa 


41 


w « 










«3 




rH 


O 


U 




4J 




41 


«H 




c 




0' 








X 


E-> 


w 




se 




> 




JZ 








•H 


c 




-C 


3 o 










o 




10 


(0 






r 




C£ 


CO 




•H 




4J 












u 












jj 








Du 


3 


•* 


e-> 


O r» 










•H 







E 


rH 




«-^ 




n^ 


'u 




•o 




o 












4) 




u 




r-4 




O 








rH 


<N 


T3 


cn 


CO 1 










E 




••H 


U 


CS 










o 




c 




41 












■v 




4) 




o 
















u 




to 










<u 




■o 


CO 


JJ 










u 




■H 




rH 












■V 




3 




JJ 




rH 












10 




to 










sz 




4) 


£ 


V 










■H 




vj 




a> 












CO 




o 




o 




rH 












O 




CTi 












o 




JC 


0u 


X 










< 




o 




CO 












iJ 




a. 




X 




< 












m 






rH 



111-18 



of a year (71 percent) in 1971 and four-fifths (79 percent) in 
1972. Among the selected group of products detailed by the Task 
Force for analysis, the more severe workers compensation cases 
occurred among aircraft, chemicals, ladders and motor vehicles. 
Aircraft closed workers compensation cases averaged more than 4.1 
and 3.1 years of disability in 1971 and 1972. Chemicals, the 
next most severe of the selected product categories, averaged 
approximately 2 years of disability. Workers compensation closed 
cases involving ladders averaged slightly in excess of 1 year's 
disability, while motor vehicles averaged slichtly less than 1 
year in duration. 

The average amount of compensation provided changed only 
slightly between the aggregate period from 1966-70 and the 2 
single years of analysis, 1971 and 1972. The variation in 
overall average amounts of compensation provided over the 7 years 
varied by less than 8 percent from a low of $1,677 in 1971 to a 
high of $1,998 in 1972. While the absolute amounts of average 
compensation provided varied in accordance with the extent of 
severity of the injury, the amount of awards received per week 
was inversely related. As an indication of this, aircraft 
product related cases, which had the highest level of time loss 
in the preceding discussion, had the lowest average amount of 
compensation paid per weeks awarded--$25. 58 in 1972. In 
contrast, motor vehicle product-related closed cases which had a 
level of disability of approximately 1 year in 1972 (49.6 weeks), 
had an average amount of compensation paid per week of $48.56. 
These differences are the result of higher compensation rates for 
less severe workers compensation cases and lower ones for 
permanent disability and fatal survivor annuities under New York 
State Workers Compensation Statutes. 



111-19 



Extent and Amount of Compensation, 
Overall and Selected-Product Sources of 
New York Workers Compensation Claims 



1966-70 



1971 



1972 



All Closed Cases 

Weeks of Compensation 

Amount of Compensation 

Average Amount Per Week Awarded 



36.9 40.8 

$1,918 $1,677 $1,998 

$45.45 $48.97 



Product Sources 
Aircraft 

Weeks of Compensation 

Amount of Compensation 

Average Amount Per Week Awarded 
Chemicals 

Weeks of Compensation 

Amount of Compensation 

Average Amount Per Week Awarded 
Ladders 

Weeks of Compensation 

Amount of Compensation 

Average Amount Per Week Awarded 
Motor Vehicles 

Weeks of Compensation 

Amount of Compensation 

Average Amount Per Week Awarded 



213.4 163.2 

$3,844 $3,464 $4,174 

$16.23 $25.58 

104.2 95.0 

$3,872 $3,482 $3,528 

$33.42 $37.14 

56.9 59.5 

$3,039 $2,728 $3,190 

$47.94 $53.61 

47.3 49.6 

$2,173 $2,080 $2,409 

$43.97 $48.56 



Source: Table III-4 



111-20 



Summary of Findings 

The results of analyzing this selected body of State workers 
compensation injury reports revealed the following: 

• On average, selected products designated by the Task 
Force accounted for one in every ten workplace injuries 
in the review jurisdictions; this ranred from less than 
H percent of all workplace injuries reported in Texas to 
14 percent of cases in California. 

• More than half of selected-product workplace injuries 
are caused by motor vehicles; other leading causes are 
cutting and machine tools, chemicals, ladders, wood- 
working machinery, and grinding wheels. 

• The more severe selected-product workplace injuries, as 
measured by the extent of lost time and the nature of 
injuries, involve aircraft, chemicals, ladders, motor 
vehicles, and machine tools. 

• The major selected product causes of workplace injuries 
occurred predominantly in the following industries: 

— Motor Vehicles 

State and Local Covernment 

Auto Dealerships and Service Stations 

Trucking 

— Cutting and Machine Tools and Crindincr Wheels 
Primary and Fabricated Metals Manufacturing 



111-21 



— Chemicals 

» 

Chemical and Allied Products Manufacturing 
Electrical Equipment and Supplies Manufacturing 
Food and Kindred Products Manufacturing 

— Ladders 

Construction 

— Woodworking Machinery 

Lumber and Wood Products 
Furniture Manufacturing 

CONSUMER PRODUCTS INJURIES 

Data on consumer product injuries were derived from the 
National Electronic Injury Surveillance System (NEISS) developed 
by the Consumer Product Safety Commission, consisting of a 
network of 119 hospital emergency rooms. At these data 
collection nodes, for each emergency room visit the agency of 
injury is reported as well as the category of injury (0-8) based 
on severity, type and nature of injury, and characteristics of 
the injured person. There were approximately 950 different 
product codes reported in 1974 and 1975, up from 725 in 1973 when 
the program was initiated. 

A severity index devised for NEISS assigns progressively 
higher (and arbitrary) weights to the 9 different categories of 
injuries, ranging in value from to 10 for categories and 1 
respectively, to 2,516 for categories 7 and 8. The fact that a 
certain product group has an average severity index (per injury) 
of 31 does not mean that the injuries resulting from that product 
averaged out to be category 4. Rather the index is useful for 
comparative purposes only. 



111-22 



Multiplying the number of injuries reported (freaueney) by 
the average severity per injury yields another measure of product 
injury risk, the Frequency/Severity Index (FSI). This measure 
was also used in the analysis of the data. 

A small number of products caused a majority of all injuries 
for each of the 3 years. The "worst 25" consumer products, on 
average, represented less than 3 percent of all product codes for 
which accidents were reported, but caused more than three fifths 
of all injuries reported by NEISS. 

Concentration of Consumer Product Injuries in 
"Worst 25" Product Categories Reported 
to CPSC through NEISS 

Percent of Percent of 
Year Products In juries 



1973 
1974 
1975 



Source: Table III-5 

Table III-5 lists the "worst 25" products for 1975, which 
predominated over the 3 years. The number of injuries reported 
for all products varied by less than 100,000 over the 3-year 
period with 315,371 in 1973, 305,508 in 1974, and 386,739 in 
1975. 

In terms of the Frequency/Severity Index (FSI), the "worst 
25" rankings change little, with stairs, bicycles, furniture, and 
sporting equipment all still very prominent. Table III-6 
displays these products along with FSI values for 1975. 



3.4 


60.0 


2.6 


56.3 


2.6 


56.9 



111-23 











>. 












































a 

TJ 




4) 4J 












































C 




tr 


•H 












































0) 




to 


Vj 


o 


ro ^ 


cm 


CM 




r-t 




VO 


^r 


oo tr 


O rH 


r~ 




o 


00 


oincoooinovooco 


cn 


CMl 




iH 




vj 


4) 


ro 


CO i-l 


CN 


CO 




CN 




i-H 


rH CM i-H 


CM r-H CO 




m 


CM 


CMCOrHrHrHCMi-Hi-H 


CO 


in 




<0 




4) 


> 








































• 1 




o 




> 


0) 
















































< CO 












































VJ 

o 

VM 




















































4J 














































CO 




c 


• 












































4J 




4) 


4J 


<Tv 


VO r-t 


m 


m 




oo 




VO 


tr 


tr cm 


in in m 




ro 


rH 


i-HO>CTvooooocoor*- 


r~ 


r« 


r* 


Vj 




CJ 


CO 












































O 




Vj 


•iH 


vo 


in in 


>r 


ti- 




CO 




m 


ro CN 


i-H 


rH 


rH 




i-H 


r-t I— 


o 


o 


VO 


a 




4) Q 








































! 


in 


0) 




Oj 














































05 


SI 
































































































Vj 


n 




to tj 












































3 


41 


n| 


4) 


4) 


ON 


o\ r-t 


CM 


ro 




in 




rs 


o r» 


rH CM 


00 




in 


VO 


r-»CMrHavvocoavvo 


i 


I"* 


fO 


CM 


TO 


•<H 


** 1 


•r-4 


j-> 


in 


o m 


oo 


O 




CN 




in 


c 


oo m 


in vo 


a> 




ro 


ro 


ino>oovoroi— icnr» 




n 


00 


o> 


C 


u 


jm 


Vj 


u 


r~ 


in oo 


in 


CO 




m 




r- 


rH 


co tr 


oo r~ 


o 




CD 


ro 


CMCOCOCMOOCTiOO 




30 


00 


o 


M 


D 


h|> 


3 


O 














































■r"i 


-u 


■r-> 


a 


VD 


r-t C* 


r~ 


r» 




tr 




ro 


ro 


OV 00 


in in 


in 




tr 


tr 


trrorocricnrricMCM 




N 


CN 


CTi 


4-1 


c 


•■•.h 


C 


<D 


CN 








































r-t 


o 


M 


w 


u 


M 


« 








































< 


CM 


3 


TO 


4) 
















































TJ 


*J 


1) 


> 
















































O 


O 


M 


4' 
















































U 


D 


CO 
















































Oj 


TJ 


M 




















































O 


(0 


4) 
















































Vj 


w 





tr 
















































Oi 


CL 


c 


to 
















































6 


0) 


m 
















































3 • 


hi 


-1 


4> 
















































CO ^» 


41 


ID 


> 








































X 








C CJ 


E 


J 


< 








































o 








O CO 


D 










































X! 








CJ Oj 


CO 


J 


f 13 








































\ 








U 


C 


fi 


c 
































1 






■O 


CO 








CO —' 


o 


X 


« 
























c 








Vj 






01 


4) 








CO 


cj 


J 


























«J 








0> 






iH 


CO 




1 




M C 


"to 
























sz 








JZ 






CM 


to 




u 




CJ O 


s | « 
























■p 








4J 






•iH 


0) 




o 




Z -H 


ml -.h 












TJ 






•o 














o 






o 


Vj 




4-1 




CO 


CNffl 


u 












4) 






4) 






T3 Vj 












TJ 


01 


4J 




o 




VM CO 


CO 


D 








tj 




rH 


TJ 




4J 




CO 


TJ 0) 1) 








4J 




41 


a. 


4J 




£ 




O •* 


x) 


H 


(—. 








4-1 4) 




01 


4) 




<C 




3 


41 -n £ 






CO 


O 




••H 


CO TJ 


TO 








B 


10 


a 


C 








C -VJ 




4> 


4J 




rH 




4) 


•HHJ 4J 






rH 


c 




VM 


01 


e 




» 




co e 


m 


e 


hH 








4) TO 




x: 


TO 




4) 




Vj 


IU-H O 






TO 






•^ 


4) -iH 






CO 




c o 


o 










E rH 




3 


i-H 




Vj 




O 


"H O 






•iH 


u 




O 


CO <4H TJ 


4J 




tv 




CJ 


s 


>r« 








a a> 






0) 








CO 


O 0i - 






Vj 







0) 


•iH -iH 4) 


o 




r-t 




•rH 


t XI lo 








•r« Vj 




CN 


Vj 




T3 






4) 0- CO 






0) 






Cl 3 O -h to 


c 




o 




4-1 >, 


1 








3 










C 




TJ 


a co co 






4-1 


T3 




CO 


Vj 41 vw C CO 






•iH 




TO 4-1 


1 TJ 


Vj 








tr tj 




4J 


TJ 




A3 




C 


CO (0 






TO 


0) 






01 Cl -H TO to 


*■ 




x: 




rH 01 


• o- 


4i 








4) c c 




a 


C 








Q 


4) rH 






e 


Vj 




a> x 


CO 




0) 




3 VM 


m+J 


O 








-H 10 




CD 


ro 




>- 






4) CO CT 








4) 




CO 


4-> 4) r-t 


41 




> 




X) TO 


l vj 


c 








a> tr 




o 






4J 




»■ 


CO -H 






c 


4J 




•rJ 


o o> a i v e 








TO CO 


M O 


3 




4-> 




r-t -H >. 




X 


> 




ft 




CO 


•r< 3 3 






c 


CO 




3 


CO TJ CO 


TO 




TJ 




4-* 


m a 


2 




O 




U VI 4J 




4) 


4-1 




> 




J^ 


* vj O 






•H 


r-t 




Vj 


4J -rH 41 rH •■ 


VJ 




0) 




4J 


M 4) 






a 




>i O -H 






•H 




••H 




o 


Vj 4) «D 






Vj 


O T? 


0' 


03VJ-HTOrH C0W4 




r-t 




CJ 


a 






tj 




O > 




fc 


> 




J-> 




TO 


ore 


CO 




O 


s: 


0) 


x: 


C Vj 41 O *> «H 4) 






0> 




TJ 3 


u 




o 




•i-l c «H 




CO 


•H 




U 




4-> 


x: 4-> -^ 


3 




o 


a 


-iH 


4J 


O 3 C 01 TO 10 


» 




Oi • 




0) TJ 


■J 




u 


CO 


n 3 -w 




4> 


4J 




ro 




4-1 


4J o 3 


o 




i-H 


3 VW 


o 


-x: o e *• co 

10 4-> a. •■ .* TO 


CO 




x: o 




x: o 


03 




Oj 


a 


o o 




r-t 


o 








4) 


O 


•o 




UH 




•rJ 




cr 




3 4J 




CO Vj 


< 






4) 


tj c ro 


4-1 


CJ 


to -u 


» 


4J 


a 


4J -O 


c 






4-1 


O 


4J 


41 O C rH - CJ i-H 


c 




1 Oi 




•H Oj 


E* 






4-> 


c x 


c 


•iH CO 




c 


^H 


c 


Vj 


■HOC 


•1-J 




t3 


o 


01 


o 


o 3 rH co o cr 


•H 




CM 




i-H 








CO 


ro c - 


41 


SZ 4> 


» 


0> 


i—l 


a' 


a 


C «D 


3 




c 


C 


a 


c 


01 4- 1 TO Vj CJ 


VJ 


CO 


»• 




X) U 










3 r-t 


E 


4) rH 


i— i 


e 


TO 


E 


u 


c 






TO 




CO 




■h o 'j3 n cr 


a 


CTTJ CO 




3 0> 








•■ 


01 rH 





> cj 


i—i 


0-X> 


a 




» CO 


e 






» 




► 


D- C > C - C 


CO 


C 


0) Oi 




& e 








CO 


rH » <0 


-iH 


•iH 


TO 


•«-l 


4-> 


•iH 


*• 


^ co » 


Vj 




CO 


CO 


QJ 


CO 


Vj CO -iH 10 (0 -iH 




■iH 


CO r-t 




C 3 








VJ 


O CO X> 


3 


Vj £ 


J0 


■D 


4- 


a 


CO 


CO 4) O 


C 


CO 


Vj 


Vj 


co 


OlrH -0)-l- , TOO4)-S<: 


•• 


Vj 


c o 




D CO 








1-t 


>. CO 4J 


D 


o a» 


a» 





J«? 


D 


i-H 


Vj > T> 


4J 


TJ 


O 


•■-J 


•iH 


i-H 


TO(0i-HU4-»^H4-IC 


co 0- Oi >i 




c 








to 


o ro o 


<D 


4J > 


CO 


Oi 


10 


4) 


•H 


O -«h C 


CO 


C 


O 


TO 


3 


X) 


4JTJ4JO C & K -r* 


TJ 


to 


o o 




o 








4-> 


••H ,-H o 




o 


TO 




m 




«3 


C C--t 




O rH 


x: 




TO 


CV413Q OTOJCVJ 


41 




•fH 




CJ 








CO 


mot 




3l 


CD 




CD 




Z O u: S 




Cu 


Cjl, 


CJ 




hZflJUlOUtJCODO 




•J 




•• 

cj m 


































































































vj r» 


















































3 <r> 


















































O rH 




CO 














































CO 




CO 


01 


cm 


(NHH 




rH 


"T 




m 




ON 


CTi cm in 




tr 


r- 


tr 




CO 


n^fMONinro* 


r-t 




o 




w 




M 


tj 


TT 


OfH 




O 


O 




o 




rH 


tr tr i-i 




c 


o 


tr 




00 


rH<novorHtrocM 


o 




rH 




TO 




CO 


O 


00 


CN VO CM 




CT> 


CN 




CM 




oo 


00 «*• CO 




Cfs 


00 


VO 




vo 


oovc^cMi-ivocotr 


VO 




en 




0) 








z o 


r-» 


»H i-H 




iH 


r-t 




rH 




r-t 


>-t r* 




rH 


i-H 








r-t l-H rH rH 






r-t 




X 



111-24 



TABLE III-6. — " Worst 25" Consumer Product Injur ies as 

Reported by WEISS" "- I' PS I' Calendar Yea? 19 /b 

Frequency/Severity Index Values ( FSll 

Code Product FSI 

1842 Stairs, steps 802,776 

1202 Bicycle and bicycle ecmipment 702,797 

1904 Foods 639,582 

1901 Motor vehicles, except 2 wheeled 553,696 

1211 Football, activity and equipment 386,804 

1204 Baseball 306,495 
641 Glass, unknown origin 277,634 

1849 Doors, not otherwise specified 262,836 

1205 Basketball 220,032 
1807 Floors and floorinq materials 188,400 
1819 Nails, carpettacks, and screws 183,406 
1910 Licensed 2 wheeled vehicles, 

motorcycles, etc. 147,316 

644 Chairs, not upholstered or not 

otherwise specified 145,050 
1920 Druqs, prescription (tablets, 

capsules) 131,454 

1439 Lawn mowers, not otherwise specified 125,048 

683 Tables, not otherwise specified 121,408 

694 Beds, not otherwise specified 118,720 

442 Knives, not otherwise soecified 118,146 

1815 Windows and window glass, other 

than storm windows 117,020 
1284 Swimming pool, not otherwise 

specified 97,680 
611 Bathtub and shower structures, not 

doors or panels 95,675 

601 Beds, including springs and frames 94,281 

645 Tables, cocktail 87,377 
1813 Metal pieces, not otherwise 

specified 85,146 

696 Ladders, not otherwise specified 83,148 

Source: Unoublished tabulations of NEISS Consumer Product Injury 
Reports for Calendar Year 1975, Consumer Product Safety Commission 
(CPSC) . 



111-25 



As indicated in table III-7, sporting equipment accidents 
accounted for approximately one-fifth of all injuries . reported 
over the 3-year period. Bicycles constitute one in twenty 
consumer injuries reported (5.6 percent in 1975), while selected 
Task Force products such as drugs and chemicals account for less 
than 2 percent of the total. The average severity of all 
consumer injuries reported through NEISS remained fairly constant 
over the initial period, 3^.6 in 1973 and 32.6 in both 1974 and 
1975. Selected-product categories with relatively more severe 
injuries than the aggregate average were chemicals, lawnmowers 
and drugs with ratings of 104.4, 77.7 and 62.7, respectively. 

Data from the Consumer Product Safety Commission (CPSC) were 
analyzed to develop a profile of major sources of consumer 
product injuries, and to determine if there are any trends which 
may be of consequence to the product liability problem. Data 
were available from the NEISS consumer accident reporting system 
for 3 calendar years — 1973 to 1975, and were analyzed with 
respect to individual product codes as well as major product 
groupings specified in the Task Force research agenda. 

The results of analyzing CPSC NEISS consumer injuries reports 
can be summarized as follows: 

• An average of 6.7 million injuries were sustained 
annually by consumers over the period from 1973 to 1975 
based on sample surveys of hospital emergency room 
reports supplied to the CPSC. 

• Overall, less than 3 percent of the product classes 
accounted for approximately 60 percent of the injuries 
reported to the CPSC. 



111-26 









in r» 




ON 




r» 


vo 


t 




ON 


vo 


■u 






r» 


• 




• 




• 


• 


• 




• 


• 


V 






> 


IN 




CM 




r- 


*r 


TT 




co 


CM 


D 






*J 


VO 




co 




r» 


CM 


O 




CM 


CO 


T3 






•H 














rH 








O 






14 






















u 






ft) 






















eu 






> 


























ft) ^t 


iH 




vo 




r- 


O 


r~ 




00 


vo 


u 


n 




CO f- 


• 




• 




• 


• 


• 




• 


• 


cv 


r» 






00 




o 




00 


*r 


r- 




T 


CM 


e 


< 




ft) 


KT 




co 




r» 


CM 


m 




CM 


ro 


3 


^ 




cr 






















V) 


~. 




10 






















c 


J> 




u 






















o 


-H 




ft) co o 




r- 




*r 


in 


co 




CO 


vo 


CJ 






> r» 


• 




• 




• 


• 


• 




• 


• 


W 




< 


CM 




CM 




o 


«* 


o 




*»• 


T 


ft) 


lj 


>- 




VO 




ro 




r-» 


CM 


o 




CM 


ro 


O 


w 


a 
















rH 








K 


ft) 


•H 
























o 


* 


u 
























fcl 




ft) 
























14 


> 
























.* 


m 


a> 
























in 


c 


CO 
























ro 


c 


























E-< 


c 


ft) 
























rH 


cr 
























>4 


10 


m 
























O 


-J 


u 


in 


r- 


'J' 


ON 


VO 


as 


VO as 


X> O 


in 


^r on 


ON o 


•r—i 




ft) 


r» n 


• 


o 


• 


in 


• TT 


• 00 


• 


oo • 


CO • 


(C 


J 


> 




in 


i-H 


in 


m 


^r 


CM 


00 


r-i 


m cm 


r^ o 


£ 


^1 


< 
























& 




4J 


in 




<h 




CM 


CM 


in 




00 


VO r-l 


SP 


TJ 


C 






CM 












00 


00 


c 


ft) 




















CO 


1 


rO 


o 






















10 






u 






















o 


f) 


c 


ft) 






















•r-l 


/) 


o 


Ou «» 


00 


m 


i— 1 


m 


VO 


vo in 


in rH 


ON 


O T 


00 o 


4J 


■H 


•H 


\ r~ o 


• 


oo 


« 


o 


• as 


• CO 


• 


ON • 


o • 


10 


u 


4-> 


u 


in 


<— i 


r- 


vo 


en 


xr 


as 


O0 


CM r-t 


in o 


■H 


z 


3 


ft) 






















Ij 




x> 


X) 


** 




ON 




i-H 


<-i 


i— i 




in 


in r-i 


ft) 


S 


•H 


E 






<— i 








rH 




vo 


o 


4-> 


u 


3 




















co 


o 




4J 


55 






















<0 


D 


(0 
























Ij 


^ 


•r4 
























re 


*j 


D 


co 


00 


CO 


CM 


00 


VO 


r» vo 


«r co 


ON 


cm r* 


rH O 


x: 


u 






ro 




00 





00 


• v 


• CO 


• 


ro • 


r~ • 


CJ 


O 


u 




vo 


rH 


CM 


in 


CM 


ro 


ON 


rH 


CM o 


CO o 


a 


01 
























►, 


ft) 


XI 




in 




00 




CM 


iH 


in 




in 


in «h 


u 


X 


e 








rH 












vo 


rH 


D 




3 






















CO 


■n 


(0 


1 z 
























c 


<c 
























►H 




























1 CO 


























i a 


























• 3 






















** 




r- o 




5i 


















C 




1 u 




14 


















ft) 




m C5 




o 












(0 






£ 




M 




ex 












ft) 






a 




IH 




0) 
4J 












o 

•H 






•H 

3 


(0 


CC 




(0 










CO 


> 






«T 


■U 


J 




a 










U 


ft) 






U 


o 


CQ 














ft) 


Q 


(0 






3 


< 




4J 






CO 




» 




r-i 




CT> 


-o 


£-• 




o 






ft) 




o 


iH 


«0 




C 


O 






3 






rH 




2C 


10 


u 




•M 


14 






'O 


(0 




o 






O 


•H 




*J 


04 






o 


tr 




>1 




c 


•H 


e 




u 








VI 


3 




u 




3 


T3 


ft> 




o 


rH 






(U 


J-e 




•l-t 




(0 


ft) 


-C 




a 


rH 










o 




CQ 




J 


T. 


u 




(0 


< 



14 




O 




1*4 




00 




4J 




14 


• 


o 


^-, 


ao 


ft> 


to 


OS 


a. 




u 


>. 


^— 


14 




3 


c 


•n 


o 


C 


•H 


M 


CO 




CO 


4J 


•r-l 


O 


e 


3 


6 


T3 


o 


O 


u 


V4 




(X 


> 




4J 


14 


ft) 


ft) 


VM 


e 


(0 


3 


CO 


(0 




c 


4J 


o 


o 


CJ 


3 




T3 


10 


O 


10 


l-i 


M 


cu 


CO 




55 


14 




ft) 


ft) 


e 


•C 


3 


4J 


CO 




c 


VM 


o 


O 


u 


CO 


* 


c 


m 


o 


r» 


•H 


ON 


4J 


rH 


10 




rH 


TJ 


3 


c 


XI 


ro 


(0 




4-> 


» 




T 


TJ 


r- 


ft> 


ON 


£ 


rH 


(0 




•H 


». 


rH 


CO 


X) 


r~ 


3 


ON 


a 


rH 


c 




D 


10 




1-1 




<0 


•• 


ft) 


<D 


>H 


CJ 




14 


vj 


3 


ro 


O 


X) 


co 


C 




ft) 




rH 




10 




CJ 



111-27 



• Predominant product categories among the "worst 25" 
reported to the CPSC were stairs, furniture, bicycles, 
foods, motor vehicles and sporting sroods; the average 
severity of all consumer products remained stable in 
both 1974 and 1975, at a rating of 34.6 percent. 

• Of consumer product groups selected by the Task Force, 
The most severe injuries occurred in chemicals, lawn 
mowers and drugs with severity ratings of 104, 78, and 
63, respectively, for Calendar Year 1975. 

A cautionary note in interpreting these results is that data 
on consumer product injuries are in the form of frequency counts 
rather than incidence rates. Thus, no interpretations or 
inferences can be made regarding the likelihood of injury from 
using a particular product. All products do not have the same 
exposure or use; however, a first order approximation of the 
magnitude of the hazardousness of a particular product can be 
gained by analysis of this type of data. 

OENERAL AVIATION INJURIES 

Introduction and Summary 

The Federal Aviation Administration (FAA) collects and 
analyzes data annually on the incidence, causes, and 
characteristics of general aviation accidents. A historical time 
series of general aviation accidents was tabulated from this FAA 
data base for the period from 1965 to 1974 for the purpose of 
analyzing trends. 

Oeneral aviation accidents were divided into three broad 

categories product-related, human-related, and other. 

Accidents related to airframe, landing £ear, powerplant, systems, 



111-28 



instruments/equipment and accessories, and rotorcraft failures 
are grouped under "product"; pilot and personnel under "human" 
and airport/airway/facility, weather, terrain, miscellaneous and 
undetermined are included under "other". 

Injuries are classified according to their severity as fatal, 
serious, minor, and none/unknown. 

Data for analysis of general aviation accidents consisted of 
two types — aggregate levels of reported accidents per 1,000 
flying hours and so-called fractional injuries or the ratio of 
injuries in a particular group, for example, products or 
personnel related to the total reported. This latter measure 
indicates the relative importance of each cause of general 
aviation accidents. For example, out of a total of 292 reported 
general aviation accidents in 1964, there were 74 fatalities due 
to product failures. Thus, fractional fatalities attributable to 
product sources for that year were .2534 (74/292). 

Time trend analyses were performed on both sets of data to 
determine if there was significant variation in any of the 
aggregate and fractional general aviation accident measures over 
the 10-year period. Least squares fits were made to the data 
sets and resulting slopes and product moment correlation 
coefficients were examined to determine trends. 

Results of Analysis 

Tables III-8 and III-9 display aggregate general aviation 
accident incidence rates and fractional ratios for the period of 
analysis. On average, there were less than .2 accidents per 
1,000 flying hours over the 10 years from 1965 to 1974, with 
little variation in the overall incidence rate. The fractional 
ratios were computed for six years at the beginning, middle, and 



111-29 



V 


«r 


< 




& 


c 


in 


c 


< 


-l-l 


n 


4-> 


■c 


(C 


T> 


■H 


H 


> 




< 


1 



r-l 


ku 


«0 


V 


u 


c 


(V 


CJ 


c 


D 


0> 


H 


e: 


K> 


1 c 


1 


W 





w 




w 




3 




o 




X 


U 


CP 


0) 


c 


(X 


•H 




> 


Cfl 


f— 1 


4-> 


0-, 


c 




<D T3 


T3 


c 


•.-I 


(0 


O 


w 


o 


o 


rf 


o 




£ 




£H 



vc cm ^ in *r .— (invoinro 

r-IOi-l|-lrHCMr0<\lOO 
CNCMCN<NCM<\I(N<N<NCM 



C -» 

o - 

r-t O 
ft, O 

o 



V) 

u c 

o *~ 



romromi— io<N«rooin 
r^Oi-iorooinovO'**' 

H(N(N(NNNNN(<1fO 



00 TJ 




1 C 




M« 




l-l 




M 




U 


w 


■J 


4J 


CD 


^ 


< 


<u 


E- 


-D 




•i-i 




O 




o 




< 



vooor~<Noor^r^^roovo 

HtLflOONVCHi-IVOON 

vocmoci— i^rr^Cr-iiHin 
roTT^rinmirivovovovD 






o> ^ o> ^ o> ovc^ o^ crs o> 



03 




U 




•r-l 




4J 




w 




•.-1 




u 




<D 




*J 




O 




(0 




>J 




(0 




x; 




o 




T3 




C 




(0 




w 




4-» 




c 




<u 




T> 




•^ 




O 




O 




<T5 




C 


• 


o >o 


•I-I 


u 


4-> 


IS 


rtj 


o 


•r^ 


CO 


> 




<0 


> 




*J 


<-t 


0> 


It] <M 


u 


<d 


<U 


w 


C 




(1) 


o 


(T 


••-I 




14-1 


IW 4-1 


O 


<0 




w 


W fcH 


c 




o 


«■ 


••-1 


c 


4J 


o 


«3 


•d 


i— i 


•U 


3 


ro 


XI 


l-l 


ro 


4J 


.w 


w 




•f-4 




c 


T> 


•l-l 


<D 


e 


JC T3 


(0 < 


•H 




•H 


c 


X 


o 


3 


•iH 


CL-P 


c 


A3 


3 


•H 




> 




< 


■I 


i-H 


<D 


<TJ 


O 


kJ 


u 


<U 


3-D 


O 


<D 


C/i 


Cu 



111-30 





















c 




















o 




















•■-1 




















4J 






u 


o 


vo 


T 


ON 


<y\ 


VO 


(0 




CO 


a> 


CN 


c 


00 


T 


p» 


VO 


•H 




4-> 


x: 


a\ 


r-H 


CT* 


VO 


CO 


CO 


> 




C 


4-J 


CN 


CN 


CN 


co 


CO 


CO 


< 




a* 


o 


















TJ 
















rH 




•■-i 
















Q 




o 
















Vj 




o 


I-H 














a> 




<c 


a> 














"C 






c 


ON 


i— I 


CN 


CM 


o 


CN 


0) 




Vj 


c 


i-H 


O 


O 


in 


o 


O 


Cu 


in 


o 


o 


•<J> 


T 


M- 


in 


(N 


*T 




CD 


c 


CO 


CO 


CO 


CO 


ro 


CO 


CO 


v 


co 


•H 


VJ 














CO 


3 


s: 


QJ 














o 


(C 




a, 














•rt 


CJ 


c 
o 
















4J 

to 


T5 


•r-l 
















-r4 


01 


4J 


4-> 














VJ 


4J 


u 


o 


in 


vo 


o 


•<r 


00 


CN 


V 


(0 


<D 


3 


VO 


cr» 


o 


»* 


<^ 


VO 


4-) 


i— 1 


Vj 


T3 


CTi 


in 


CM 


OD 


^r 


CO 


o 


(U 


Dl, 


O 


■*r 


f 


*3" 


«3- 


^r 


*r 


CO 


a 




u 
Cu 














Vj 

m 


^ 


















s: 


4J 


















o 


•p-l 




















» 


















c 


in 




Vj 


i— 1 


a-. 


in 


"J- 


CO 


i-H 


ia 


o 


CO 


CD 


r~ 


*r 


vc 


ro 


r^ 


m 




•r-i 


4J 


x: 


co 


oo 


r~ 


O 


o 


CN 


CO 


u 


c 


4-> 


rH 


rH 


i—i 


CM 


CM 


CN 


4J 


a 


(D 


O 














c 


•n 


'D 
















a* 


c 


•H 
















T> 


M 




i-i 














•H 

o 


c 


< 


tv 














o 


o 




c 


co 


co 


^H 


in 


rr 


^r 


10 


•••J 


to 


c 


CTi 


.— I 


CM 


r- 


CO 


VO 




4J 


3 


o 


cj> 


Csl 


CM 


CM 


CO 


ro 


c 


CO 


o 


CO 


rH 


CM 


CM 


CN 


CM 


CM 


o 


•<-t 


•H 


vj 














tH 


> 


Vj 


CD 














4-» 


< 


0J 
C/j 


ex 














<0 

> 


<D 


c 
















10 


u 


o 


4J 
















0.1 


• i-4 


CJ 


o 


*r 


r^ 


i-H 


O 


CO 


i-H 


C 


4-1 


3 


o 


■<r 


co 


Oi 


O 


o 


(0 


o 


u 


T) 


in 


tj- 


CO 


** 


CO 


r- 


VJ 


|"H 


Vj 


O 


CN 


CM 


CM 


CM 


CM 


CN 


c 


(0 


















CT 


c 




















o 


















«4-l • 


•l-l 


















O TJ 


4J 




U 


r- 


co 


O 


\D 


l£> 


r-\ 


Vj 


u 




c 


o 


■■3 1 


in 


i-H 


•<r 


00 


co ro 


(D 


CO 


•C 


r~ 


o 


CM 


CO 


m 


CO 


c o 


Vj 


4J 


4-> 


in 


vo 


in 


T 


■«r 


TT 


O CO 


(J-, 

1 


C 

a> 


O 














•H 

4-> >: 


1 


T3 
















ro 4-> 


• 


•i-t 
















rH IV 


1 


CJ 
O 


CD 














D UH 

x) ro 


n 


< 


c 


in 


in 


m 


CM 


in 


CO 


ro w 


rH 




c 


i— t 


CD 


r~ 


r~ 


vo 


CN 


4-» 


t-H 


i-H 


o 


in 


co 


co 


i—i 


■^r 


CN 


o 




A3 


CO 


*r 


«* 


■>* 


•^ 


•v 


^r 


•I-l 


[J 


4J 


vj 














T3 vm 


J 


(0 


cd 














a> vm 


CO 


Dl, 


a. 














x: ro 


< 


















10 Vj 


En 


c 
o 

•H 


4J 














•H Eh 
i-H 

JO » 




4J 


CJ 


■»r 


oo 


CN 


«=r 


o 


CO 


3 C 




o 


3 


CO 


in 


VO 


V£> 


o 


CO 


a o 




IT! 


'V 


in 


Ov 


rr 


<£> 


CM 


c* 


C "H 




VJ 


o 


CM 


CN 


co 


CM 


CO 


CN 


O 4-> 




tu 


u 

CU 














ro 

Vj 

4J 

•• tfl 

CD -rJ 

o c 






vj 


«* 


in 


<X* 


O 


T 


in 


Vj -r( 






TO 


vo 


VO 


VO 


r- 


r~ 


r^ 


3 £ 






CD 


ON 


o> 


C* 


o 


CT 


ON 


O T3 






>H 


i-H 


.-h 


i-H 


i-H 


i-H 


r-t 


to < 



111-31 



end of the 10-year period of analysis and displayed in table III- 
9. Product sources accounted for less than half of all minor 
injuries reported, less than one-third of fatalities and 
approximately one-fourth of serious injuries. Weather and 
terrain-caused accidents accounted for over one-half to three- 
fifths of fatal general aviation accidents. 

The least squares estimation and correlation analysis 
performed on both aggregate and fractional data revealed no time 
dependence. This was attested to by a near zero slope and 
product moment correlation coefficient value of close to zero (- 
.028), confirming the time independence of injuries. 

Statistical analysis of FAA general aviation accidents and 
injuries revealed the following: 

• The relative incidence of general aviation accidents per 
thousand flying hours remained virtually constant over 
the period from 1965 to 1974; both in the aggregate and 
for each source; e.g., products, etc. 

• The incidence of product-caused general aviation 
injuries was lowest for fatal and highest for minor 
accidents; these relationships were constant over the 
entire decade of analysis. 

• The relative share of product-caused general aviation 
injuries did not increase over time and was not as 
significant a factor as personnel or weather and terrain 
sources . 



111-32 



CHAPTER IV--MANUFACTURERS PRODUCT LIABILITY 
PROBLEMS AND EXPERIENCE— AN ASSESSMENT 

OVERVIEW AND SUMMARY 

Introduction 

Several studies and surveys conducted by the Bureau of 
Domestic Commerce of the U.S. Department of Commerce during the 
Spring of 1976 resulted in the collection of some preliminary 
information concerning a growing product liability problem 
confronting certain manufacturers. This was typified by reports 
of large increases in product liability insurance costs, limits 
on coverage, rising claims, and large court judgments in product 
liability suits. There were also allegations about firms "going 
bare" — that is, not securing any coverage for product liability 
risks. In some cases the cost of insurance was reported to be 
reaching proportions where it threatened the ability of some 
producers to continue in existence. 

The examination of accident profiles for industrial and 
consumer products in the preceding chapter indicated that the 
relative incidence and severity of accidents and injuries in both 
categories have not increased. The issue then was to develop 
more substantial information concerning the question of what has 
precipitated the problem, and to sort out what appeared to be 
conflicting information about causes as reported by the various 
interested parties — manufacturers, insurers, and the legal 
profession . 

To accomplish this fact finding, the Industry Study performed 
a data-gathering and analysis effort that relied principally on 
three sources of information — a product liability telephone 
survey of industry, discussions with representatives of selected 



IV-1 



firms, and the analysis of product liability surveys, conducted by 
a number of trade associations of their respective memberships. 

One major source of information was a telephone survey of 
manufacturers drawn from the nine product categories designated 
by the Task Force. Approximately 540 firms were selected through 
random sampling procedures in accordance with two criteria: (1) 
sales volume and (2) product category. Over 90 percent of the 
firms contacted during a telephone screening process agreed to 
participate in the survey. The nine product areas cover 
manufactured goods used both in workplace environments and by 
consumers. The survey was designed with the objective of 
determining trends in the cost and availability of product 
liability insurance coverage, trends in claims, settlements and 
damage awards, and the extent of the use of safety programs and 
their impact. This information was collected separately for 
small, medium, and large firms. 

Three hundred and thirty-seven firms (about 68 percent of the 
firms that agreed to participate) responded to the survey in 
telephone interviews. While this is a small number of completed 
responses, the information derived nevertheless provides a fairly 
comprehensive picture of the recent experiences and problems 
encountered by industrial and consumer products manufacturers by 
virtue of both the coverage of significant portions of total 
sales in each product category and the inclusion of small and 
medium-sized firms. However, the information derived from the 
Product Liability Industry Telephone Survey is only 
representative of the experience of those firms responding in the 
product categories selected and is not meant to be representative 
of the collective experience of all manufacturing firms. 

The second major source of information was a collection of 20 
product liability surveys conducted by various trade associations 



IV- 2 



and other groups of their respective memberships. These surveys 
present comparable information to that derived from the 
independent telephone survey of manufacturers. The information 
analyzed is of two types: (1) aggregate results of trade 
association surveys submitted to the Task Force and (2) 
individual responses to some trade association surveys submitted 
to the Industry Study for detailed processing. While the surveys 
may reflect the interests of their respective memberships, they 
do present a mosaic of common problems concerning trends in cost 
and availability of insurance, claims and settlements, product 
safety programs, and assessments of possible remedies. 

A third source of complementary information was a series of 
site visits and discussions with representatives of twenty firms 
screened by respective trade associations. These firms were 
selected in accordance with a combination of sales volume and 
product category criteria comparable to the categories derived 
for the nationwide telephone survey. The primary discussion 
topics were: the identification of product liability preventive 
programs and their impact; present financial and legal means of 
controlling or limiting product liability; and an assessment of 
the relative importance of Task Force remedy proposals. 

Glossary of Terms Used in Chapter IV 

A number of terms are used differently in this chapter than 

may be the case in ordinary usage or in the more specialized 

fields related to the product liability problem. They are 

defined here to assist the reader in following the analyses in 

,his chapter. 

Large firms are companies whose annual gross sales are over 
$100 million. Medium- size firms are those whose annual f?ross 
sales are between $2.5 and $100 million in the telephone survey 



IV- 3 



and selected firm discussions and between $5 and $100 million in 
the trade association data analyses. Small firms are those whose 
annual gross sales are below $2.5 million in the case of the 
telephone interviews and the selected firm discussions and below 
$5 million in the trade association analyses. 

Firms which have anonymous product exposure make products 
which disappear into those of other firms, such as industrial 
chemicals, small parts and castings. Firms which have contingent 
product exposure make products which are traceable to the 
manufacturer, but the product's safety and hence the liability, 
is dependent upon proper use in the workplace or by some 
technician or professional. Examples of contingent exposure 
products are industrial machinery and medical devices. Direct 
exposure products are those which are traceable to the 
manufacturer but are distributed to the consumer or ultimate user 
from the manufacturer. Examples are power mowers, home carpentry 
tools and sports equipment. 

Firms that are assuming the risk of their product liability 
by going bare and not purchasing product liability insurance are 
described as self - insured along with those which have recognized 
self insurance programs in the formal sense used by the insurance 
industry. 

In describing premiums, insurance costs, and settlement 
amounts, a very unrepresentative impression can be made because 
of a few very large dollar figures which are averaged in with the 
many smaller ones. The analyses in this chapter strive for the 
most typical representation or common firm experience. As a 
result, average dollar amounts are presented by firm size 
category in the telephone survey analysis, and sometimes further 
clarification is attempted through normalization which ffives the 
amounts per thousand dollars of gross sales. In the trade 



IV- 4 



association analyses, the data are not available to aim for this 
decree of specificity in the relationship between the variable 
and size of firm; often large amounts from large firms are 
included with smaller firms. In order to give the most 
representative picture of these survey results — the median — the 
amount which has half the cases above it and half below — is used 
at times instead of the arithmetic average in reporting central 
tendency in the trade association data. If only average amounts 
are available, known extreme figures are statistically extracted 
or balanced leaving a more representative adjusted average . 

Synthesis of Findings 

Cost and loss experience factors and trends 

This summary is based on the Product Liability Industry 
Telephone Survey findings with additional references to the trade 
association surveys or the selected firm discussions where their 
findings amplify or clarify the Industry Survey interpretations. 
The summary is directed at providing in capsule form, major 
findings on basic cost and loss experience factors by both 
product category and sales volume size (i.e., small, under $2.5 
million in gross sales; medium, $2.5 to $100 million in gross 
sales; and large, $100 million or over). The information 
provided in tables IV-1 and IV-2 identifies these differences 
among several leading indicators. The indicators are: 

• The cost of comprehensive general liability insurance 
per $1,000 of sales; 

• The estimated product liability insurance cost per 
$1 ,000 of sales; 

• Average deductible limits or risk retention levels; 



IV- 5 



Table IV- 1 

Comparative Analysis of Leading Indicators for 

Small, Medium and Large firms - Product Liability 

Industry Telephone Survey 





Under 




C 


)ver 






$2.5 mil. 


$2.5-$100 mil. 


$100 mil. 


Total 


CGL Cost/$1,000 Sales 




1971 


$2.87 


$1.25 




$0.67 


$1.17 


1975 


4.86 


2.36 




0.89 


2.32 


1976 


7.42 


3.88 




1.24 


3.59 


Estimated Product Liability 












Insurance Cost/$1,000 Sales 












1971 


$1.10 


$.93 




$0.54 


$0.74 


1975 


2.58 


1.47 




0.78 


1.40 


1976 


5.32 


3.23 




1.09 


2.81 


Percent Change 












1971-1976 


383% 


247% 




102% 


280% 


1975-1976 


106% 


120% 




39% 


101% 


Average Deductible or Risk 












Retention Level ($000) 












1971 


13.2 


57.3 




54.3 


51.0 


1975 


8.9 


33.6 




207.4 


138.3 


1976 


7.4 


120.4 




334.5 


232.6 


Percent of Firms Reporting Claims 












1971-1976 


18 


50 




96 


56 


Average No. of Pending 












Claims Per Firm 












1971 


.01 


.58 




13.79 


3.4 


1975 


.06 


3.18 




46.82 


14.0 


1976 


.08 


3.46 




65.01 


18.9 


Percent Change 












1971-1976 


700% 


496% 




371% 


456% 


1975-1976 


33% 


9% 




39% 


35% 


Average No. of New Claims Per Firm 












1971 


.02 


.9 




16.1 


4.3 


1973 


.06 


1.2 




39.0 


11.1 


1975 


.08 


1.6 




38.2 


11.4 


1976 


.07 


1.3 




33.4 


9.9 


Average Amount of Damages 












Sought Per Firm 




1971 


$250 


$102,100 


$1 


,936,700 


$434,000 


1975 


3,400 


1,642,900 


6 


,142,300 


1,976,700 


1976 


2,100 


1,394,300 


13 


,892,400 


3,526,900 


Average Settlement Amounts Per Firm 












1971 


$ 900 


$1,400 




$ 45,400 


$12,100 


1973 


600 


3,200 




96,200 


28,200 


1975 


100 


6,100 




70,200 


22,200 


1976 


100 


7,500 




92,100 


27,800 



Source: 



Product Liability Industry Telephone Survey, Gordon Associates, Inc. 
December 1976, Tables IV-10, IV-12, IV-15, IV-21, IV-26 and IV-28. 



IV- 6 



ul 



m o fi 

CO rH rH 



CO d rl 01 



(Ji H Oi f 

in m in 



fo n o cc 
rn n r- in 



£ j? M 
po r^ o 







QJ 


Ul 




m 


OJ 


<L> 


\0 T O 


fN 

i 


W 


-H 


in cn ^t 


> 




O 


ro c* in 


M 




CP 



A* o| 





01 


1H 


u 


m 


01 


5 


3 


o 


<) 


fh 


i 





dp dp 




in in CO 


X r- 




Hino 

rH 


r-\ cn 

vo 


O <n m 

,-| rH rH 



O (N 


CO O Cn 


f* lO 






H (T> ^ 




ro m 





# *> 




'J >D "* 


.-1 "I 




^«lft 


» o 

IN r-4 


ID ffi CO 
r-H ^ 



O OMD O 



r- \£> \D \£> 
m r^ (N ro 



in ^ C* 



rH ^ 



cd co en 
^ *■ CO 



TT 


CN 


VO 


Cn 


^ 


0) 3 
C XI 


cn 


O 


rH 


in 


m 





fN 


«?• 


CN 


CN 


1 
> 

M 


j: >h 
a. a, 

01 

-H T> 
0J 01 
Eh -H 




in 


o*» 


CTi 


01 


IW 


r** 


H 


00 


rH 


rH 

4 


tru 


rH 


m 


CN 


i-4 


4-> 01 










t- 


in a 
3 to 












•O 










vc 


C T> 










r> 


H C 


.-1 


VO 


<T 


\f) 


01 


10 


CN 


i-*) 


r^ 


cn 




4-» rH 


rH 


m 


^3- 


in 


h 


-H rH 



Ul 


01 


W 


•H 


Ul 


<l> 


Id 




-H 


>i 


u 


u 


•H 


<> 





re 


*-i 


en 



a h 

e 

O tn 







df> d° 




■H 


rH cn m 


KD rH 




E 

a» 
U 


rH O CN 


CN VD 

rH rH 


o o CO 



try 




C 




•H 


Ul 


11 


r-1 


c 


01 


•H 


(11 


H 


£ 


u 


2 





>J 




1-1 




0) 




V. 


r-H 


-H 




c 


Tl 


(1 


C 


ig 


M 


2: 



M in CD ifl 
^ CO * ^ 



in cn r- <o 



\0 \£> p- VO 








dP 


dP dP 


t vc r- cd 


KF 


O CN 




<tf 


m ,-< 



cn m kd 

rH lO CO 



*y in 
in co 


01 


<#> * 





rH 


rH O 

m H 



■■fr O Cn 

m ^ co 



*r co m m 



rH ^" CTi 

HHOl 



rH ^ «T 

o cn in 

VO CTI rH 



■^ r- r- 
m p- fN 

*r cn in 



ro 





vD 


r- 


•H 



4-1 4-1 


r~ 


T 




tn 





1U O 






cn 


CO 


en 
10 

< 

c 

TJ 

|H 




H 3 
3 "C 

ja 

10 u 

E-i a 

iH >, 
10 c 
C CO 


T 


1 


in 


O 


a 


•H — 


on 


r- 


T 


01 




Ul 










>, 
01 
> 
w 
3 
to 

01 

c 



E e 

-H 

u 10 
u-i H 
U 
c 

en 
■h c 

■U -H 
re T) 





n 


ci 


r> 


j: 


E 01 










a 


CO 


ON 


en' 


LTi 


01 


cu 






Ul 


Ul 


1-4 


e 


4J 


0. 


3 


U 




•H 


3 


■0 


e 


•0 


01 


01 






in vo 
en en 



rH 




rH 

cn 


in 

cn 




Ul 




0) 




rr 




(0 




B 






Q 







v> 






O 




4-> 


c 


c: 


■H 


3 


Ch 







1 


u 

QJ 




a, 


01 




tn 


jj 


« 


£ 


M 


m 


01 


3 


> 


(i 


< 


Ul 










< > 







4-> 


™ 


c 
01 


1 

■H 


fe 


^H 


Ui 










01 
Ul 


0) 
0i 


0) 


Ul 


(T 


4-1 


ffl 


C 


U 


3 


01 


O 


> 

< 


1 











>, 


4-* 01 










u 


£ 01 










4-1 


Oi 01 










CO 


3 10 


1 


f>l 


CN 


a 


3 


i 

to re 


CN 


CO 


(N 





C 


a 


rH 


IN 


CN 


CN 


M 

>! 

4-1 
•H 

•H 

re 

■H 
iJ 

4-1 
U 

3 


Ul 

0) rH 

01 re 
re 4J 

B H 

CI : 

• < 
01 

CN X 

1 -H 

> -a 

H C 



en m vo 
r^ r» r- 

cn en cn cn 



IV- 7 



• Extent of respondents reporting claims; 

• Average number of both new and pending claims; 

• Avera.ee amount of damages sought and settlements paid 
per responding firm. 

The important elements in the discussion that follows are the 
relative incidence and shift in both the cost of product 
liability insurance coverage, and contributory loss experience 
factors over the five years from 1971 to 1976, as well as, the 
impact on small versus lar«?e firms and workplace versus consumer 
products . 

Changes and impacts of the costs of product liability coverage 

As evidenced by the data in both the sales volume size and 
product category comparisons, the cost of product liability 
insurance coverage has risen dramatically for all survev 
respondents, particularly within the past year. Generally, the 
cost of product liability insurance has risen by nearly 2 times, 
with the largest increases occurring in the smallest sales 
classes — less than $2.5 million. Cost increases in product 
liability insurance coverage were largest for grinding wheels in 
the workplace product category, and for power mowers, 
pharmaceuticals and medical devices in the consumer category. 
Medical devices had the highest estimated rates for 1976. 

• Trade association surveys reported annual oremium cost 
increases during the 1974-76 period to be generally 2 to 
10 times as hierh as during the period from 1970 to 197 2 *. 
The range of annual increases in the last two years was 
from 22 to 225 percent in contrast to a range of to 55 
percent in the period from 1970 to 1974. Hierher 



IV- 8 



percentage increases appear to have been associated with 
products having contingent exposure with both workplace 
and professional uses, the same types of products which 
had the highest increases in the telephone survey. The 
firm size differences noted in the telephone survey are 
also evident in the trade association data. 

Risk assumption, deductibles and self-insurance retention levels 

• The telephone survey shows that the number of firms with 
deductibles has increased between 1971 and 1976, by 80 
percent for large firms, 130 percent for medium firms 
and 100 percent for small firms. The average deductible 
or self-insurance retention level increased by 516 
percent in large firms, 110 percent in medium firms and 
decreased 44 percent in small firms. 

However, smaller and medium size firms assumed the total 
risk for product liability more frequently than large 
firms: In 1976, 29 percent of small firms had nc 
product coverage; 13 percent of medium-size firms had no 
coverage; while only 3 percent of the larp-e firms were 
not insured. 

• In the various trade association surveys, firms were 
using deductibles from two to six times more frequently 
in the 1974 to 1976 period than in the previous three 
years. Risk retention levels increased substantially in 
surveys dominated by large firms and tended to stay the 
same or decrease in smaller-firm dominated surveys. 

• Trade association studies representing mostly small 
firms had non-insured percentages of 4 to 21 percent. 
Results for associations involving anonymous and 



IV- 9 



consumer products had higher non-insurance percentages 
(11 to 20 percent) than those for workplace products 
manufacturers (4 to 8 percent). 

• In all studies, small firms and anonymous product 
manufacturers gave "don't need" or "too expensive" as 
primary reasons for not insuring. Large firms gave 
self-insurance as their main reason. 

Claims experience 



More than half of the telephone survey respondents (56 
percent) reported product liability claims during the six-year 
period from 1971 to 1976. The greatest distinction is by size, 
with virtually all of the large firms responding (96 percent) 
reporting claims, in contrast to less than 18 percent for small 
firms, i.e., those with less than $2.5 million in annual sales. 
The average number of new claims filed annually more than doubled 
between 1971 and 1972, from 4.3 to 10.3. Since 1972, there has 
been no significant chancre in the trend of new claims filed 
except in the case of small firms where a slight upward trend is 
noted. However, during the 1971-76 period, the average number of 
pending claims per firm has increased by nearly 6 times, from of 
3.5 in 1971 to 18.9 in 1976. This large increase in pending 
claims appears to result from delays in disposing of claims since 
the average number of new claims filed annually has not increased 
significantly since 1972. In general, large firms have the 
largest numbers of pending claims — 13.8 per firm in 1971, versus 
more than 65 in 1976. Small firms generally had limited numbers 
of claims. Consumer product categories with the largest number 
of pending claims per firm in recent years were power mowers and 
automobile components. Industrial machinery and grinding wheels 
were the leaders in the workplace Droduct group. 



IV-10 



• A significant development is that the number of new 
product liability claims for telephone survey 
respondents reached an apparent plateau in the period 
from 1973 to 1975. The average rate of new product 
liability claims reported by survey respondents was 11.1 
per firm in 1973, 12.2 in 1974, 11.4 in 1975, and 9.9 in 
1976. (It should be noted that the fierure for 1976 
covers only the first three quarters of the year.) This 
pattern was similar for most of the nine product groups 
studied . 

• The same general trends are evident in the claims 
experience reported in the trade association surveys. 

• Among firms selected for discussions, traceability of 
the product to the manufacturer and degree of exposure 
to unsupervised users (or consumers) more significantly 
affected a firm's claims experience and risk management 
posture than either size of firm or product category. 

Damages sought and settlements 

• The average amount of damages sought per firm in new 
claims increased from $476,000 in 1971 to $1.7 million 
in 1976. For lars-e firms, the average increased from 
slightly less than $2.0 million to $7.5 million per 
firm in the same period. 

• The average amount of damages sousrht per firm in pending 
claims rose from $434,000 to $3.5 million between 1971 
and 1976 for all firms responding to the telephone 
survey. For large firms, the amount sought rose from 
$1.9 million to $13.9 million. 



IV- 11 



The average amount of settlements p % aid per firm, 
including court awards, increased from $12,100 in 1971 
to $28,800 in 1972, then remained at approximately the 
same level through the first three quarters of 1976. 
For large firms, the amount paid rose from $45,400 in 

1971 to $99,000 in 1972, then leveled off at about the 

1972 figure. 

Trade association surveys provided additional 
information on the outcome of settlements through in- 
court activity. The limited available data indicate 
that only three to seven percent of the claims filed 
resulted in court judgments. There is no indication in 
the small number of in-court settlements reported, that 
they are increasing in number or size of award. 
Industrial machinery products seem to be slightly more 
involved in court actions than the other prooucts 
studied . 



Product safety and preventive programs 

• Approximately 40 percent of respondents in the telephone 
survey had developed some form of program directed at 
reducing product liability claims. Larger firms were 
more inclined to have such programs than small firms. 
seventy percent of these programs were initiated before 
1974. Improved quality control and labeling were the 
most common approaches, with product redesign next but 
emphasized less often, primarily by large firms. 

• Over ten percent of the firms reported exclusion of 
specific products as a restriction in their product 
liability coverage; 23 firms (7 percent of the telephone 



IV- 12 



respondents), reported decisions to discontinue products 
in the last two years. Twenty-six firms decided to 
postpone introduction of products because of product 
liability related problems. 

• Insurance carriers' loss prevention engineers were 
reported to have made inspections during the past two 
years in 7H percent of the large firms and 54 percent of 
the small firms which have insurance coverage. 
Recommendations for reducing claims were made in 42 
percent of these cases, usually bearing on quality 
control and labeling. 

• Trade association surveys which were primarily 
representative of large firms also indicated that 
quality control and redesign were effective preventive 
strategies. Consumer products manufacturers emphasized 
labeling approaches and mentioned that advertising and 
warranty disclosure changes had been made. 

• A question on dropping products was included in 4 of the 
5 trade association surveys which addressed preventive 
programs. It received minor recognition in each as an 
unpopular but sometimes only effective remedy. 

• Selected firm discussions revealed extensive programs 
oriented more to safety than to claims prevention. A 
number of these firms had been active in development of 
governmental and voluntary standards for assessing 
product safety. They have high level working groups 
which are responsible for product auality, and have 
priority claims — following programs which are aimed at 
efficient and equitable handling of claims in the 
interest of goodwill and the firms' reputations, but 



IV-13 



more importantly, are designed to feed back immediately 
to adjust manufacturing processes, quality' control 
measures or product engineering and design. 

• Quality of the product that enters the marketplace is 
assured through repeated testing along the line of 
manufacture in some cases, and by documentation of 
product condition when it leaves the place of 
manufacture through test results and photographs. 

• The firms interviewed also take precautions to train the 
users and even monitor the product use. Behavioral 
research has been employed to design instructions for 
use of products, and to insure that such instructions 
cannot be removed from the product. 

Remedies assessment 

Trade association surveys 

• Remedies were assessed only in surveys dominated by 
large firms. Prominent among suggested solutions was 
strong support for statutes of limitations, and use of 
workers compensation as an exclusive source of 
reparations amonf capital floods manufacturers. 

• Trade association surveys provided additional support 
for several lep-al defenses; particularly, misuse and 
modification, state-of-the-art and compliance with 
government safety standards. 

• Support for limitations on damage awards, contingent fee 
control and "loser pays" provisions were also given in 
responses from several trade associations. 



IV-14 



Selected firm discussions 

• These firms strongly supported extensive preventive 
programs and establishment of, and compliance with, 
safety standards as the best remedy. They support these 
means as much out of a desire to avoid injuries as to 
avoid claims. 

• Other remedies that received support from the selected 
firms were related to modification of tort through 
standards and other defenses, such as misuse or 
alteration, and state-of-the-art determination for time 
of manufacture, or award amount guidelines. The 
contingent fee system for attorney compensation was 
severely criticized. These firms also tend to support 
proposals for guaranteed insurance contingent upon 
compliance with standards. 

PRODUCT LIABILITY INDUSTRY SURVEY 

Introduction 

A telephone survey of manufacturing firms was undertaken to 
verify the reliability of data from trade association sources and 
to provide more adequate coverage of the nine product categories 
which the Task Force had identified as those in which the product 
liability problem may be severe. 

Survey Methods and Data 

The survey was undertaken to assure adeouate coverage of the 
nine industrial/consumer product categories of special interest 
to the Interagency Task Force evaluation, to assure coverage of 
small, as well as large manufacturers within these product 



IV- 15 



categories, and to provide a consistent basis for evaluation 

* 

across product categories. The nine product categories selected 
for analysis were as follows: 

• Products with workplace impact: 

1. Industrial machinery, metal cutting, metal forming, 
woodworking and textile machinerv 

2. Ferrous and nonferrous metal castings 

3. Industrial grinding wheels 

4. Industrial chemicals 

• Products with consumer impact: 

1 . Power mowers 

2. Automotive components 

3. Pharmaceuticals 

4. Medical devices 

5. Aircraft components 

The sample of manufacturing firms was drawn from Dun and 
Bradstreet lists of firms by 4-die-it SIC categories. The Task 
Force identified applicable SIC codes for each of the nine 
industrial/consumer product categories. Sampling was done on a 
stratified basis. Firms in each of the nine industrial/consumer 
product categories were arrayed by sales volume. A random sample 
of about 20 firms was drawn from each of three strata within each 



IV-16 



industry category. The first stratum was composed of firms with 
$100 million or greater total annual sales volume. The third 
stratum included all firms with sales volumes of less than $2.5 
million. The remaining firms comprised the second stratum. 

After partitioning the universe of manufacturers into the 27 
product/sales volume groups, firms from each croup were selecting 
randomly and contacted by telephone. The purposes of these 
contacts were to determine whether the firm was appropriately 
classified by SIC code in the Dun and Bradstreet files, to 
determine whether the firm was, in fact, manufacturing the 
product category specified, and whether thev were willing to 
participate in the survey. If this screening indicated that the 
firm was not appropriately classified by SIC code or product 
category, a replacement was selected randomly to obtain the 
desired sample size. No replacements were made for firms 
declining to participate in the survey. These firms were 
included in the overall nonresponse calculations. The overall 
response rate was 68 percent; response rates for individual 
product category/sales volume croups ranged generally from about 
50 percent to 90 percent. 

It should be emphasized that the sample was not designed to 
meet rigorous criteria for makirn? statistical projections to 
national estimates for the product categories of interest. It 
did provide sufficient coverage for these product categories to 
develop reasonable indicators of trends in insurance premiums and 
coverage, as well as claims experience of the firms, by size 
category. 

The questionnaire stressed Quantitative measures of both the 
overall product liability insurance and claims experience of the 
sample firms and their product liability experience for one of 
the nine product categories specified. Emphasis was placed on 



IV-17 



obtaining data on several critical measures: premiums for product 
liability insurance coverage, self-insurance or deductible 
retention levels, limits of liability, number of claims, amount 
of damages sought, and the number and amount of settlements. 
These data were collected for a 6-year period — 1971 through 1976. 

Analysis of the data for a 6-year period allows assessment of 
trends in the number and severity of claims; the number and 
amount of settlements; product liability insurance premiums for 
basic, excess and surplus coverage; as well as policy 
restrictions and limits of liability. 

The questionnaire also elicited responses concerning product 
liability problems encountered by the firms, the impact of 
product safety programs, and remedies undertaken by the firms to 
reduce product liability claims. The impact of recommendations 
made by carrier loss prevention surveys was also addressed in the 
questionnaire. The questionnaire is presented in Appendix B of 
Volume II of this report. 

The Product Liability Industry Survey was directed at 
uncovering evidence of problems among a selected proup of product 
manufacturers. Many of the products included in the scope of the 
Industry Study are critical for both the maintenance of strategic 
capabilities and production of essential goods and services in 
the marketplace. Because of the survey design which also 
accounted for differences in the size of manufacturing firms in 
these selected product categories, the reader will be able to 
determine where the greatest impacts of the emergin? product 
liability problems have occurred. 

The presentation of Product Liability Industry Survey 
findings follows a sequence from general characteristics (e.g., 
response patterns and sales volumes) to specific issues of 



IV-18 



interest to policymakers (e.g., trends in underlying loss 

experience and costs for product liability coverages). The data 

and findings are displayed by both product and sales volume 
categories. 

To assist the reader in following the presentation, each 

section has been headed by a series of questions underlying basic 

issues concerning Industry Product Liability Problems. These 
issues are as follows: 

• What were the response patterns and general sales 
characteristics of firms in the selected product 
categories? 

• What were basic patterns and trends in insurance 
coverages, costs, limits of liability, restrictions, and 
exclusions among firms in selected product categories 
and between small and large firms? 

• What were the underlying trends and patterns in claims 
experience, that is, claims frequency, new claims 
formation, backlog of pending claims, extent of damages 
sought and settlements paid for product liability 
claims? 

• What preventive and remedial -actions have been 
undertaken by manufacturers in these selected product 
categories to assure high standards of product quality 
and safety? 



IV-19 



Survey Results 

» 

What are the characteristics of responding firms? 

The distribution of sample firms Dy product category and 
sales category is presented in table IV-3. The number of firms 
in each sample, the number of responding firms, and the response 
rates by product/sales category are provided. Variation in the 
number of firms by category in the sample was due to three 
factors: (1) limitations in the number of firms in the universe 
(e.g., there were only seven firms with sales greater than $100 
million manufacturing industrial grinding wheels); (2) time 
constraints which limited the number of firms whicn could, be 
identified during the screening process for a specific product 
category (examples include small and medium size firms 
manufacturing aircraft components); and C3) firms which met 
requirements and agreed to participate during callbacks, even 
though the number of firms required were already included in the 
sample. Courtesy required inclusion of these firms in the 
sample. 

As shown in table IV-3, 11 of the 27 cells had response rates 
greater than 75 percent; T6 of the product/size categories had 
response rates of 65 percent or greater. Only three of the 
categories had response rates less than 50 percent. The response 
rates by product category ranged from 53 to 80 percent. The 
overall response rate for the sample was 68 percent. 

Table IV-4 presents average sales per firm by product 
category and sales stratum for 1975. It must be noted that 28 of 
the 113 medium-size firms responding to the question had 1975 
sales of less than $5 million and 54 had less than $10 million. 
All product category/sales strata appeared to have significant 
increases in sales between 1971 and 1975. Continuing increases 



IV- 20 



TABLE IV-3. — Number of Firms in the ' Samole , Number of Responses and 
Response RaTes , By Product and gales Categories 



Product Category 

Industrial products 

Industrial machinery 
Metal castings 
Grinding wheels 
Industrial chemicals 



Less than $2.5 million 

Number Number Percent 

Contacted Responses Response 



$2.5 to $100 million 

Number Number Percent 

Contacted Responses Response 



18 


14 


78 


20 


11 


55 


18 


11 


61 


20 


13 


65 


16 


8 


50 


18 


15 


83 


17 


12 


71 


21 


18 


86 



Consumer products 



Power mowers 
Automotive components 
Pharmaceuticals 
Medical devices 
Aircraft components 

All product cate- 
gories 



18 


15 


83 


18 


14 


78 


20 


9 


45 


21 


14 


67 


22 


12 


55 


19 


12 


63 


20 


13 


65 


19 


13 


68 


18 


9 


50 


18 


9 


50 



167 



103 



62 



174 



119 



68 



Product Category 
Industrial products 



$100 million and over 



Number 
Contacted 



Number Percent 
Responses Response 



All Firms 



Number 
Contacted 



Number 
Responses 



Percent 
Response 



Industrial machinery 
Metal castings 
Grinding wheels 
Industrial chemicals 



20 


18 


90 


18 


14 


78 


8 


3 


38 


17 


14 


82 



58 


43 


74 


56 


38 


68 


42 


26 


62 


55 


44 


80 



Consumer products 



Power mowers 
Automotive components 
Pharmaceuticals 
Medical devices 
Aircraft components 

All product cate- 
gories 



19 


8 


42 


19 


15 


79 


19 


16 


84 


17 


15 


88 


21 


12 


57 



158 



115 



73 



55 


37 


67 


60 


38 


63 


60 


40 


67 


56 


41 


73 


57 


30 


53 



499 



337 



68 



Source: 
1976. 



Product Liability Industry Telephone Survey, Gordon Associates Inc., December 



IV-21 







01 


cm in 


VO rH 


in 


CO 00 


00 on 


cm 






£ 


v m 


CM ■«»■ 


co 


ro n 


ro cm 


CN 






E 












ro 




CO 


3 
















e 


Z 
















u 


















•H 


















Bu 


















rH 




*T cr* 


VO o 


c* 


m r- 


v© ro 


■* 




rH 


*-* 


00 o 


in <m 


in 


t ro 


^r o 


r~ 




«* 


o 

o 


VO 00 


ON 00 


>* 


o r- 


00 CTl 


ON 






o 


t-\ m 


t-i CM 


00 


P- rH 


rH en 


CN 






c/> 


00 o 


in cm 


CO 


r- o> 


in t 


CM 








r-i CM 


rH "tf 


rH 


rH CN 


•-1 CM 


CM 




M 


















41 


















> 


l-l 
















O 


u 


















0) 


00 "T 


co ro 


oc 


in vo 


in cm 


«3- 


JJ 


n 


JQ 


rH rH 


rH 




i-t rH 


rH rH 


rH 


u 


c 


e 












rH 


D 


to 


3 














T3 




z 














O 


c 
















u 


o 
















a. 


•H 
















> 


-t 




r~ <Ti O T 


VO 


i-i CO 


CO rH 


O 


x 


•H 


^-. 


cm <y> 


in rH 


o> 


r- O 


ro O 


VO 




6 


o 


rH O 


t~\ «a- 


r> 


oo o> 


If vo 


00 


*■ 




o 


•■ » 


». * 








* 


E 


o 


o 


VO 00 


r» tt 


o 


in cm 


r- o 


rH 


>-. 


o 


v> 


rH O 


r- o> 


VO 


r- oo 


TT 0> 


o 


-H 


e— 1 


*»" 


«r in 


CM CM 


in 


ro vo 


ro in 


vo 



VO 



u 

o> 

X 

e 

01 
V 
0> 

o 



(A, 




c 




o> 


o 


rH 


V) 


r-H 


•H 


Vj 


0) 




r-l 


0> 


rH 


> 


rH 


XI 


fO 


U 


•H 


e 


to 


O 


e 


3 


cr 




z 


(0 


a' 


o 




to 


4J 


o 




o 


to 


rH 




Vj 


u 


<A- 




O 








(0 


o 


*-~ 


rH 


<D 


■U 


c 


IE 


■H 




o 


4J 


(0 


in 


o 


o 


V) 


• 


V) 


6h 




CM 


— • 


T! 


vy 




0> 


C 






C 


<0 






(0 








u 




c 




0) 




o 




> 




-H 


rH 


< 




rH 


Vj 


1 


rH 


0) 


1 


•H 


X 


• 


e 


e 


^r 




3 


1 


in 


z 


> 


• 




►H 


CM 




U 






J 


c 




CO 


<a 


*-^ 


«£ 


.c 


o 


H 


4J 


o 
o 




in 


</> 




CO 


1 — 




0) 








rJ 





rH cm in r~ 



CO f rH CM 00 



o 

u 

ro 

u 



u 

3 

o 
u 
a. 



w 

XJ 

o 

3 
O 



to 

3 
■D 

C 



WHTf CO 

(N O OMf) 

rH f~ VO 00 
rH CM 



CO 0\ 00 i-> 



00 rH P~ VD 

VO CM O O 

CM VO cn O 

t-i rH CM 



D rH 



W 
W rH 

tT 0) 
c 0> 

H X 

(0 

u c 



tfl rH TJ 
3 fO C 
t3 -U -H 
C 01 U 

HE(J 



CO 

XJ 

o 

3 
T> 
O 



0> 

B 
3 
(0 

c 
o 
u 



ic «f r- est 

r» ro vo cm in 

t-i co oo cm in 

r- i— ro vo vo 

CM C» rH "W r-t 



T CT> rH rH 0\ 



CN 

P- CM rH CO VO 

«r r» vo co •■ 

CO 



in 
o 

CM 

r» 

CM 



in 



CM 



10 

c 

01 

c 



w 



(0 CO 

rH 0> 

10 CJ 

O -H 



01 01 

» > 

O -H 
E -K 

o 

vj E 



I 

0) 

JJ 

«3 
U 



•H > 

jj a> 
3 -u 

01 J-J 
OH 1 " 

co io re 

E O u 
vj -H (J 

ICO 14 

jC Q)-H 



o 

3 

T5 CO 
O 0) 

VJ -H 

a U 

O 

rH IT 



C 

•r-t 

•D 

C 

o 
a 

CO 
01 
u 

to 

E 

Wl 



o> 

X 

E 
3 

c 
o> 

jC 
j-J 

CO 
01 

•U 

CO 

u 

•H 

c 



0) 
X 

E 
3 

z 

H 



c 
o 
•a 

u 
O 
O 



0) 

> 
u 

3 
10 

o> 
c 
o 
J= 
a 
o> 

rH 
01 

>1 

u 

4-> 

to 

3 

•a 

c 






X 



o 

3 
•O 

o 



0) 
CJ 

Vj 

3 

o 
w 



IV-22 



were estimated by the firms in the sample for 1976. Overall, the 
firms in the sample had an increase in total gross sales from 
1971 through 1976 of approximately 70 percent. 

Table IV-5 presents information on the percentage of total 
sales attributed to the nine designated product categories, by 
sales category for 1975. The small and medium-size firms 
surveyed are, on the average, highly specialized in the specific 
product categories selected for the study. The large firms 
generally are less specialized in these product categories. The 
percentage of total sales for the specified product categories 
has remained fairly constant from 1971 through 1976, by product 
category and sales category. Overall, this has approximated 70 
percent for each of these years. Small and medium firms have 
averaged approximately 80 percent; large firms approximately 50 
percent . 



What was the extent and types of product liability 
coverage among responding firms? 

Approximately 86 percent of firms in the sample carried some 
form of product liability insurance. Conversely, 14 percent did 
not carry any form of product liability coverage. This ratio 
varied somewhat across product categories. Generally 75 to 97 
percent of firms in the several product categories carried some 
product liability coverage. However, as indicated in table IW6, 
it was not the large firms which elected to go without insurance 
or "self-insure". The smaller firms were much less likely to 
have product liability coverage. Ninety^-seven percent of firms 
with sales of $100 million or over had insurance coverage, while 
only seventy-one percent of firms with sales of less than $2.5 
million had coverage. 



IV- 2 3 









0) 




oo o m vo 




CM 


CO «» CM 1— 




CM 








10 


x 




co co cm co 




co 


CO COCO CM 




Cr. 








E 


e 














CM 








u 


3 






















•H 


z 






















Cu 
























rH 


4-> 






















«-l 


c 






















< 






in o in c* 




o> 


CM ^ *!■ VO 




O 










u 




r*> oo in vo 




'Xi 


r- r~ r- in 




r~ 




• 






at 


















to 






£X 


















CT> 




u 




















r-t 




0) 
























> 




















U 




o 




















0) 




i-H 


















x> 




•o 


Vj 


















e 




c 


CD 




to nw 




VD 


mtHH 




CO 




cu 




10 


X> 

e 




lH rH 






r-t r-t r-t r-t 




CTl 




CJ 

cu 


<4-l| 


c 


3 


















Q 


o| 


o 

■H 


z 


















k 


4J 




r-t 




















• 


C 




rH 


4-1 


















o 


<P 




•rH 


C 


















c 


u 


n 


e 


0) 


















M 


u 


!>"> 




o 




ro « r> O 




CM 


HHr-fO 




eri 






<D 


o-i 


o 


M 




in in cm 




in 


vcr»fO(o 




«»■ 




to 


CL- 


H 


o 


cu 


















cu 




r-l 


IX 


















i-> 


IO^ 


t/> 




















10 


u 






















•■H 


10 IO 






















CJ 


to|cr 


C 




















o 


c 


o 




















to 


to 


4-> 


■H 




















to 


CU 


<D 


rHr-t 


















< 


rH 


u 


rH 


u 




















<c 




-H 


<v 




rH cm m f~ 




CO 


tooco 




o 




c 


CO 


a> 


e 


X) 




r-t r-t r-t r-t 




r-t 


r-t r-t r-l 




r-t 




o 


N 




6 














r-t 




TJ 


t>- 


H 


o 


3 


















u 


Vj 


1/5 


o 


z 


















o 


o 




r-t 




















o 


cr 


> 


</v 






















c 


O 




4J 


















*■ 


4J 




o 


c 


















>1 


10 


*- 


4-1 


<D 


















cu 


CJ 


w 




CJ 




t— CM CO CO 




CO 


© in CM rH 




P» 




> 


0) 


ID 


u 




oo <y> in oo 




r» 


oo r» o> \o 




r- 


• 


u 


4J 


H 


• 


cu 
















cr 


3 


u 


<C 


CM 


(X 
















c 


CO 


a 


[fl 


to- 


















•H 




T> 






















-o 


cu 


O 


10 




















c 


c 


Vj 


10 


c 


















o 


o 


£- 


o 


o 


















•a 


sz 


1 U 


•ft 


















to 


a 


1 U 


r-l 


















OJ 


<u 


• 


rH«-t 
















u 


rH 


tnrH 


••-I 


u 


















cu 


1 to 


e 


CD 




co oo r» o 




CO 


<J\ O r-t 00 




at 


to 


Eh 


>4J 




XI 




r-t r-t 




r-t 


rH rH 




00 


e 




►H O 


ID 


e 
















u 


>. 


E-i 


• 


a 
















•H 


M 


CO 


CM 


z 
















M-l 


4J 


a 


VJ- 




















to 


CD 




















IU 


3 


< 


c 


4-> 
















o 


T3 


Eh 


10 

jC 


c 
cu 
















u 


C 
M 




4J 


CJ 




00 SlOH 




CM 


oo in CO ** 




CO 


cu 








u 




00 CO 00 CT\ 




r~ 


r- oo a> r» 




CO 


X) 


>• 




0) 


CU 
















e 


4-> 




(0 


(X 
















3 


•H 




a> 


















c 


rH 




►3 






> to 

U r-t 

CD <0 






to 

4J 

c to 
at 4-) 


i 

9) 




cu 

4J 
CO 

a 


•■H 
X) 
<0 
•r4 

1-3 
4-1 






> 


CO 


C O 






c c 


4J 




4-> 


CJ 






1-1 


4-> 


■H -H 






o cu 


(0 




10 


3 






o 


CJ 


x: to e 


to 




a to to c 


CJ 




CJ 


•o 






cr 


3 


CJ CO rH CD 


4J 




ehcj o 

O <0 CJ D- 






•«H 


o 






cu 


•D 


10 CT cu x: 


o 




4J 




•o 


kl 






4J 


O 


B C CD CJ 


3 


to 


O U-n E 


CJ 




c 


ex 






TO 


u 


■h x: 


■O 


u 


•rH > O 


3 




•H 








U 


a 


rH 4J J rH 


O 


cd 


CU 4-> CU CJ 


TJ 


to 














(0 to ro 


U 


? 


> 3TJ 


O 


CU 


M 


•• 






4-) 


r-l 


•H 10 CT "** 


a 


o 


•H CD 4J 


u 


•r-t 


CU 


cu 






CJ 


(0 


U CJ C U 




E 


V OH<W 


a 


u 


X) 


o 






3 


-rH 


4J H 4J 


u 




O <0 10 <0 




o 


6 


u 






TJ 


M 


10 r-t TJ 10 


cu 


u 


EEOK 


rH 


a- 


3 


3 






O 


4J 


3 <C C 3 


e 


a> 


O U-r* O 


rH 




z 


o 






u 


05 


ID 4J-H >o 


3 


•s 


4J (0T3 W 


< 




r-t 


CO 






(X 


a 

C 


C 0> U C 

H IOH 


(0 

c 
o 


o 
ex 


3 £ CU -rt 


















M 




o 















IV- 2 4 



TABLE IV-6. — Extent of Current Product Liability 
Coverage , bv Size Category 



Size of Firms 

Less than $2.5 million 
$2.5 to $100 million 
$100 million and over 
All size categories 







Number 


Percentage 


of Firms 


Yes 


No 


Yes No 


71.3 


28.7 


72 29 


87.4 


12.6 


104 15 


97.3 


2.7 


11C 3 


85.9 


14.1 


286 47 



Source: Product Liability Industry Telephone Survey, Gordon 
Associates, Inc., December 1976. 

Reasons given for not carrying product liability insurance 
are presented in Table IV-7. The primary reasons were the 
expense and a belief on the part of a number of firms that tliey 
do not need coverage. Nineteen firms indicated the former and 
fifteen the latter. Four firms indicated that they could not 
obtain coverage at any cost. In only one instance did a firm 
report that previous coverage had recently been canceled and in 
only two instances did firms indicate a preference for self- 
insurance. 



Approximately 64 percent of the firms carried both primary 
and umbrella product liability insurance. However, as shown in 
table IV-8 the type of coverage is closely related to the size of 
the firm; the larger are firms more likely 'to carry both forms of 
coverage than smaller firms. Gv.er 92 percent of firms with $100 
million or more total sales carried both primary and umbrella 
coverage. Only 28 percent of firms with less than $2.5 million 



In this report the term "umbrella" coverage is used to 
represent all forms of excess insurance coverage. 

IV- 2 5 









u 










to 


0) 


ON 


1/1 


V 




E 


o 


i-l 


i-H 






u 


£ 










■i-t 


3 










Gu 


2 










i-l 












j-i 


«J 










<: 


C 












HI 


V© 


lf> 


fN 






o 


• 


• 


• 






u 


in 


V 


i-l 






at 












a- 










M 












0) 












> 












o 












r-t 










TJ 


u 








> 


> 


c 


<D 


fM 


O 


O 


4J 


Vj 


10 


Q 








-*-) 


o 




E 








r— 1 


cr 


c 


D 








'.H 


<u 





Z 








D 


4-1 


fH 










10 


<T3 


rH 










r-l 


J 


-1 


«J 








J 




•H 


c 








10 


E 


a> 


CO 






J-l 


<U 




u 


• 


1 


1 


i> 


^H 


o 


u 


i-i 






D 


<0 


o 


01 








'O 


n 


-H 


a 













w- 










u 


> 












h 


P 














c 










CrllO 


o 










CO) 


■H 










■r< W 


-Hi-I 








>C 


rH 


u 








k|o 


•iH 


a> 


in 


*r 


rH 


u|Q 


E 


JQ 








•oiw 




E 








SJ|OJ 


o 


3 








K 


o 


z 








W l 


rH 










OH 


v> 










C <0 




U 








4J 


o 


c 








u 


o 


*J 


o> 


CM 


■«r 


00 





E- 




u 


• 


• 


• 


4-1 


M 


in 

• 


u 
4) 


**■ 


r*i 


o 


10 


o 


:n 


& 








c 




x/y 













u 












10 


c 












*3 


<D 


C 










m 


o 


o 










X 


u 


•H 










1 <D 


— 1 


H 








1 £U 


r-l 


U 








• ■ 


•<H 


ID 


CN 


i-H 


ro 


r» o> 


E a 


i-l 


i-H 




1 u 




E 








> c 


in 


3 








M (0 


• 


Z 








u 


r>) 










03 D 


v> 










►J !fl 




«-> 








T c 


c 


C 








<: m 


m 


(V 


P» 


r- 


ON 


H 


jC 


o 


• 


• 


• 




p 


i-l 


i-H 


o 


CM 






ID 


i-l 


iH 






93 


a. 










(0 












a 














<A 











© 



o 



o 
o 



00 

o 



on 



Oi CD 



ID 
> 

ft 
10 

c 

<D 

a 
x 

4> 
O 

o 



c 

TO 



C TO 



10 (D 



01 

<d^h 

•0 u 

U C 

0) ID 

> U 

o 

(J >» 

«o t-> 

3 c 

O ID 

■H O 

> ID 
(D l-i 
U 

04 



10 

01 

OTJ 

u at 

u 3 

a> <o 
«-i c 

<D -i-l 



c 

•H 

no 
c 
O 

a 
w 

V 
u 

(0 

E 



<D 

£ 
3 
C 

o> 

c 



c 



ai 
n 

E 
3 






Wi 

0) 
jQ 

E 
<D 
O 

a> 

a 



o 

c 
I-l 

to 

4' 



o 
o 

(0 
CO 

< 

c 
o 

T3 

S-l 

O 

o 



> 

3 
(0 

01 

c 
o 

.c 
a 

01 

rH 
fl> 

VI 

u 
to 

3 
X} 

c 



<0 



4J 

V 

3 

o 

u 

a* 



0) 

o 

3 
O 



IV-26 







c 












co 


CO 


^ 


J» 


t- 




CO JO 


p- 


«— 


t— 


■=»■ 




h e 






CM 






C 3 












•H Z 












tb 












rH 4J 












rH C 


t— 


CM 


in 


Ov 




«t <u 


• 


» 


k 


* 




o 


T— 


zr 


CO 


CO 




c 


CVJ 




vO 


»— 




V 












a. 












c 












<u 












> 












o 












r— 












•o c 












c 4) 


in 


=T 


vO 


CO 




CO -Q 






o 






8 






r— 






C 3 












OZ 












•H 












rH 












rH 4J 










<u 




■H C 










o 




B 4> 


co 


in 


CVJ 


vO 


c 




O 


• 


• 


» 


• 


CO 




o L 


■=T 


CO 


CM 


CVJ 


t- 




O 0) 






o\ 




D 




r- a, 










T> 




v» 










C 


>J 












M 


t- 












o> 












> 


bC 


c 










j-> 


il> 


o 










iH 


to 


rHr- 










•W 


o 


.H C 










JO 




•H <U 


•ST 


in 


o> 


in 


CO 


on 


E JQ 


CM 




t— 


r— 


tH 




E 










_jM 


O 3 










CO 


O 2 










-!_> 


C/J 


- 










o 




•W- 










3 


M 


•^ 










T3 


JO] 


o c 










O 




4J (U 


CVJ 


CM 


•=r 


vO 


L 




o 


• 


• 


• 


• 


Q-j tffl 


in l 


o 


J3- 


vO 


CVJ 


E 


• a> 


CM 




VO 


1— 


d-<| t- 


c\i a. 










Ol-H 


■» 










Cr, 












4) 














D 
> 




e 










f-> 




o 










1 X* 


•H 










1 <u 


i | 










• tH 


rH t. 










CO L 


•H 4> 


=r 


in 


<T> 


Ov 


1 L 


go 


■=T 




C\J 


CM 


> to 


B 










HO 


in 3 
• z 










Ci] 


C\J 










J 


•«* 










PQ 


*y 










«< 


c a 










E-« 


co a> 


t~ 





CM 


CM 




jC O 


• 


• 


* 


• 




*> C 


CM 


•a- 


CO 


CO 




<u 


St 




CM 


CVJ 




05 a. 












0} 












4) 














J 













•o 


T3 










V 


4) 




"O 






•H 


•H 




4> 






t. 


C 




•H 


J 




t- 


c 




C 


a, 


co 


C0 


CO 


TJ 


u 




60 


o 


co a 


C 


CO 


>» 


CO 




rH 


CO 


a 


b 


c- 


4) 


rH CO 






L. 


<u 


O O 


<U CO 


o 


<0 


CO <u 


> 


■H C 


C CO 


•H 


rH 


O 60 


o 


0) CO 


x> o 


CO 


rH 


CO 


o 


CO C 


E X 


CO 


<0 


j-> J- 




O 3 


3 4> 


O 


u 


O 4> 




CO 






o 


C > 




>>C 


*S- 


£ 


s 


o 




rHiH 


rH O 


+> 


3 


•o o 




C 


B 


O 




•H 




o 


O 


m 




Q 





vO 




t— 




ON 




r— 




«- 




<u 




a 




B 




4) 




O 




4) 




Q 




. 




» 




O 




c 




M 




CO 




4> 




*> 




cfl 




■H 




O 




o 




co 




co 




«c 




c 




o 




•o 




t. 




o 




C3 




. 




>> 




4) 




> 


« 


t. 


bO 


3 


C 


CO 


•H 




•a 


a> 


c 


c 


o 


o 


Q. 


J3 


CO 


D, 


<U 


4) 


t- 


rH 




4> 


CO 


t- 


e 




t. 


>. 


•H 


c 


Cm 


4-> 




CO 


t« 


3 


O 


•o 




C 


U 


M 


<U 




X) 


>. 


E 


43 


3 


tH 


C 


rH 




•H 


<u 


O 


x: 


CO 


jj 


■H 




J 


CO 




<u 


JJ 


4J 


o 


CO 


3 


o 


•o 


tH 


o 


•o 


t. 


c 


ex 


•H 




C 


.. 


a> 


co 


o 


o 


E 


u 


3 


3 


Z 


o 



»- 00 



IV-27 



in total sales carried similar coverage. Approximately 66 
percent of firms in the "medium" sales category carried both 
forms of coverage. 

Very few firms in the sample (4.2 percent) relied only on 
umbrella coverage. Smaller firms were significantly more likely 
to carry no product liability insurance than large ones. Nearly 
one-quarter of all firms with less than $2.5 million in sales did 
not carry any form of product liability insurance during the past 
6 years. Further, these firms were much more likely to relv on 
only basic product liability coverage than larger firms in the 
sample. Coverage patterns were very similar across the nine 
product categories of interest in this study. In each category, 
the insurance coverage (both primary and umbrella) was 
approximately the same as in the total sample. 

Approximately 83 percent of firms in the sample obtained 
primary product liability coverage under comprehensive general 
liability (COL) plans. As shown in table IV-9, there is a 
relationship between the size of the firm and the type of product 
liability insurance coverage. COL coverage increases from 12 
percent of small firms with basic coverage to. over 93 percent for 
large firms with $100 million or more annual gross sales. 



TABLE IV-9. — Type of Basic Primary Liability Coverage 
by Size Category for Firms With 
Insurance Coverage 



Size of Firms 



Less than $2.5 million 
$2.5 million 
$100 million and over 
All size categories 



COL Coverage Other PL Coverage 
Percent- Number Percent- Number 
age of Firms age of Firms 



72.2 


57 


27.8 


22 


81.6 


84 


18. 4 


19 


93. M 


99 


6.6 


7 


83.3 


240 


16.7 


48 



Source: Product Liability Industry Telephone Survey, Cordon 
Associates, Inc., December 1976. 



IV- 2 8 



What were trends in the cost of product liability 
coverage among responding firms by sales 
volume and product category? 

The cost of liability insurance is influenced by the size of 
self-retention levels assumed by firms together with limits of 
liability. Changes in both of these options are discussed later 
in this section. However, in order to keep the increases in 
premium rates in perspective, two comments are made on policy 
options. First, deductibles or self-retention levels for bodily 
injury and property damage changed little during the period 1971- 
75 for those firms in the survey. Between 1975 and 1976 the 
average firm in the over $100 million sales category increased 
deductibles (combined PD&BI) from about $207,000 to $335,000. A 
sizable increase in deductibles also occurred for medium size 
firms (see table IV%15). Secondly, average limits of liability 
did not change appreciably during the 6-year period for all sales 
categories . 

Calculated costs for CCL coverage per $1,000 in total sales 
for the years 1971 to 1976 are presented in table IV-10. The 
calculated costs are provided for all firms in the sample which 
reported for the respective year in each of the three size 
categories. A sizable increase in costs per $1,000 sales is 
evident from 197^ to 1976 for all size categories. However, the 
larger firms have a substantially lower cost for comprehensive 
general liability coverage than firms in the small and medium 
size categories. Further, the size of this differential has been 
increasing. 

Table IV- 11 presents costs per $1,000 of total gross sales by 
product category and size categories for 1976. The relationship 
of COL premium costs to size of firm is evident in each product 
category. In all product categories, firms with over $100 



IV-29 



a- o 







E 


in 


t— 


on 


CM 








3 








<M 








in z 
















r- 












• 




CT* 












^O 




»— #"s 












0- 




O 


vD 


vO 


On 


CM 




3> 




o 


OO 


rn 


OO 


m 








o 


• 


• 


• 


• 








«y 


a 


OJ 


O 


<M 




C. 


^ 


*-' 












V 

a 


ri 


r- 












E 


o| 


C 












V 


uj 


a) 












o 




jO 


r- 


vO 


m 


O 




a> 


(Q 




E 


a- 


t~- 


ON 


i— 




a 


w 




3 








CM 






a 




a 2 












» 


L 




t~- 












• 


u 




C7N 












o 


> 


> 














c 


< 


t- 


O 


vO 


t— 


t^ 


a 




M 




O 


o 


r— 


a 


vO 


hO 






u 


b£ 


o 


• 


• 


• 


• 




to 


b) 


<D 


*» 


a- 


t— 


o 


r— 




Ctt 


TJ 


u 














JJ 


t, 


CO 














CO 


0> 


U 


- 












1-t 


> 




c 












o 


o 


a> 


V 












o 


ol 


«r 


r> 


o 


*— 


r^ 


SO 




n 




E 


ro 


t— 


CO 


CD 




n 


>)w 


3 








*— 




< 


u 


rn 2 




























c 
o 
o 


oj • 


CU O 


OJ 


in 


ON 


:»- 




i- 


.OT^O 


>i o 


in 


in 


-O 


■3" 




o 


■hi t*- 


o 


« 


• 


• 


• 




C3 


-ii CT 


■*» 


m 


■■* 


o 


*• 
























01 


r- 












>> 

CU 


c« 


4J 


«- 












> 


0) 




V 










• 


X. 


c 




n 


a- 


vO 


a- 


a- 


bO 


3 


ii|n 


B 


CM 


in 


oo 


>D 


a 


CO 


OtCT 


3 








*~ 


T3 


CD 


<U 




>. 










c 


C 


> 


n 


CT> 













o 


H 


<y 












a 


.c 


7) 


H 


O 


CM 


o 


a- 


Ov 


n 


a. 


_2 


fl 


O 


a- 


in 


?*- 


m 


V 


CU 


0> 


m 


O 


• 


» 


« 


V 


L 


t-« 




o 


» 


on 


*~ 


o 


*~ 


CO 


• 


^. 


o 












s 




Q 


o 












t. 


>. 


£ 




t, 










■rt 


t« 


O 




CU 










V< 


•-> 


O 


<fi 


£> 


o 


a\ 


in 


a- 




CO 


1 


E 


CM 


m 


i— 


ro 


$* 


3 


1 u 


3 








t— 


o 


■o 


. v 


«- 2 












c 


o cu 


>- 










c 


l-l 


1 


C7\ 










CO 

o 


>> 


> 


O 


r— 


in 


r— 


t~- 


a 


p 


n 


O 


ao 


CM 


vO 


T— 


3 


■r< 




O 


• 


• 


« 


• 


s 


<-• 


CO 


«» 


cm 


*— 


o 


»— 




H 


-J 


N^ 










V 


a 


en 












c 


ca 


< 




c 
o 




L 




co 


H 

J 






iH 


c 


1) 




11 


u 






r-+ 


o 


> 


CO 


u 


o 






r~l 


•H 





CU 


CO 


3 




>> 


t-l 


r-t 




■H 


a 


o 




(. 


E 


f-t 


•o 


u 


H 


o 




o 




W 


B 


o 


O 


u 




*> 


in 


B 


CO 


bd 


B 


&■ 




1) 


• 






V 


W 






u 


0J 


O 


C 


p 








CO 


*> 


O 


O 


id 


C 


• • 




o 




>r- 


■H 


o 


CU 


u 






c 


*»■ 


<-» 




O 


a 




CU 


CO 




M 


<u 


B 


m 




N 


c 


o 


■H 


N 


3 


3 




w 


4J 


li 


B 


■H 


1 z 


O 




CO 


to 


in 


O 


9) 


| - 


<^ 






55 


• 


O 


^-1 


| 








V 


<M 


>— 


rH 












_J 


«*■ 


«» 


< 


1 





IV- 30 









c 


























<E 


























JC 




(Mifiom 




O^ 0> O'N^J' 




CM 




CO 








to 


E 




co CM <\i CO 




r- CM t- (\J 




•— 




••" 








B 


3 
















CM 








L 


Z 
























•H 


























fa 


























rH 


t T> 
























^-1 


0) c 
























-X 


a co 
o> 

4J 3 

oi o 

O £ 




OCHOM 

t\j .=r o> in 

• « • • 

cm <\j in cm 




«— ^r vo vo 
co cr. t--vo 

=f cm com 




o 

• 




in 

CO 




• 

VO 

r- 
o> 




c 






















t - 




© 


























> 


»— 




















Li 




O 






















4) 

X) 




T3 


X> 




in co on cm 




in co o> cm 




t~ 




o> 




B 


CD 
hi 


vO 


C 
CO 


E 
3 




«- «— r- 




*~ *~ 








co 




4) 
O 


T) 


C— 




z 




















41 


c 


O- 


C 






















a 


0) 


r- 


o 
























X 




•H 






















fc 


< 


01 


rH 


CD C 




















o 


0> 


•HI 


•H 


a co 




cvj ^- in ■— 




novo cm <y* 




^■ 




=T 




c 


bC 


t. 


e 


01 




ro t-a-io 




CM CM C— =T 




t~- 




CM 




M 


(0 


o 




4J 3 




• • • « 




« « • » 




m 




• 






t- 


b! 


o 


CO O 




t — »— i — o 




CM r- r-«- 




o 




»— 




co 


0) 


<U 


o 


o x: 




















41 


> 


-M 




O fH 




















A> 


o 


CO 


-*» 






















c0 

•H 




c 






















o 


> 


a> 


o 






















o 


4-> 

•H 


•H 


3 


c 




















0} 
0) 


•H 


CO 


•H 


CD 




o t— cy^^f 




CM 0>vO VO 




CM 




in 




< 


X) 




E 


E 




v *"■ 




r— 








t«- 




c 


.13 
■H 
►J 




O 
O 


3 
Z 




















o 

T3 


*>l 
























O 


rH 


o 


•w- 






















O 


CO 


3 




c -o 






















L 


■a 


o 


CD C 




















•» 


cu 


Ol 


4-> 


a <o 




m co r- in 




CM O OCO 




CO 




00 




>. 


c 


t. 




01 




CO SNr- 




zr vo «-co 




o 




CO 




41 


41 


a. 


in 


J-> 3 




• • h * 




• • • » 




• 




H 




> 


Ol 


• 


to o 




cm j* ^r co 




^r cm vo co 




co 




CO 


m 


L 


X 


CO 


O £ 


















bfl 


3 


<u 


•Q 


■W-O H 


















C 


CO 


> 
























•H 




•Hi 
























TJ 


4> 


to 
























C 


C 


c 




C 




















o 


O 


a> 




o 


»— 


















a. 


x: 


jr 




•H 


c 


















01 


a. 


a> 


oa 


r-l 


CO 


















41 


41 


t- 




rH 


x» 




f- in co t«- 




cm ("--a - vo 




CO 




CT> 


L. 


rH 


a 


c 

•H 


1 -» 


B 
















*T 




41 


E 


B 


3 


















to 


H 


O 


O 


in 


Z 


















B 


>. 


1 o 


w 




















•H 


t. 


1 o 


cm 




















<m 


43 




■w- 


t- -o 




















01 


r— r— 




a> c 


















«H 


3 


«--w 


c 


Q. CO 




CO O CM o 




CM o t~- o> 




m 




CM 


O 


T3 


1 


CO 


n 




coco o> VO 




co moo r~- 




o 




^■ 




c 


:> c 


£ 


■U 3 




• » » • 




• » * m 




* 




• 


C 


M 


rH 41 


■U 


CO O 

o x: 




co cm co .^■ 




co vo ^r in 




in 




t- 


4) 
XI 


>. 


DO 


91 O H 


















B 


4J 


J4J 


9} 




















3 


•H 


ca o> 


<u 




















a 


•H 


«< o 


J 






















•H 


E-.U 




>> 




>> n 

L rH 

<U CO 




n 

c 

CD 






i 

4) 




41 

£ 

•a 

01 
4) 


XI 
CO 
•H 
►J 

4J 






l. 


n 


C O 




C 






CO 




•U 


o 






o 


jj 


•H -H 




O 01 






O 




CO 


3 






w> 


o 


j: in E 


01 


a oi v 










a 


•o 






4) 


3 


O CO rH CD 


4^ 


E rH O 






4J 




•H 


o 






JJ 


TJ 


CO bO CD XI 


o 


O CO -H 


i 




o 




•o 


L, 






.-o 


o 


E C 4> O 


3 


oi o o > 


E 




3 


0] 


c 


a. 






u 


C 


•H XI 


•o 


L. -H t- 


O 




•n 


41 


■HI 










a 


Hi) JH 


o 


1) CD J- 3 CD 


o 




O -H 










4J 




CO to CO 


t- 


3 > 3 01 




01 


b 


(. 


L, 


•• 






o 


rH 


•H CO b0-H 


o. 


O -H HI 


4J JJ 


a o 


4) 


4> 






3 


CO 


i. CI C L 




6^ OH 


Q_ 


c 




bO 


JO 


O 






TJ 


•H 


4-> .H J-> 


t. 


O fl cO 


CO 


4> 


rH 




B 


c. 






O 


L 


0] rH TJ 01 


CD 


f~ E E O 


t- 


C 


rH 




3 


3 






b 


4J 


3 .-0 C 3 


E 


<V O t. -H 


O 


O 


< 




Z 


O 






a. 


oi 


TJ -U -H T3 


3 


5 JJ CO X) 


c 


a. 






H 


CO 








3 


C CD t. C 


01 


O 3 J3 01-H 


















TJ 


HSOH 


c 


a. < a. s < 


















C 




o 
























M 




o 

















IV- 31 



million in sales had the lowest average cost per $3,000 of sales. 
In seven of the nine product categories, firms with less than 
$2.5 million in total sales had higher rates per $1,000 than 
their medium-size counterparts. In all product categories,, large 
firms had rates less than one-half those of the other firms in 
the survey. 

Respondents were asked to estimate that portion of the CGL 
premium attributable to the firm's product coverage. Cost per 
thousand was computed using this estimate and the total sales of 
the firm. A similar but less pronounced pattern was evident in 
this case. Estimated costs per $1,000 in total sales for product 
liability provisions of COL plans are presented in table IV-12. 

Respondents were also asked to estimate the portion of the 
COL premium attributable to their specified product category. 
Information concerning specified product category sales was also 
collected. Premiums for product liability coverage attributed to 
the specified product categories are presented on the basis of 
cost per $1,000 of specified product category sales in table IV- 
13. The cost per $1,000 estimates are higher than when all 
products are considered, generally 80 to 90 percent higher for 
the period 1971-76. In all instances insurance costs increased 
significantly during the period 197^-76. The data indicated 
significant variations across the 9 product categories, although 
the trends of increasing premiums are consistent from category to 
category. 

A further analysis of rates per $1,000 was undertaken to 
analyze average changes in COL premiums for firms on a year-to- 
year basis. Table IV»14 presents data on premiums. per $1,000 
sales as a ratio to prior year premiums per $1,000 sales for 1972 
through 1976. The calculations indicate nominal increases for 
the period 1971-72 to 1972-73, with significant increases for 



IV- 3 2 























C 






















o 






















JO 






«— 
















E 






C 
















» 






© 


o 


in 


fO 


<7» 


»— 


CO 




o 




a 


x> 


*— 


co 


in 


vO 


CO 


r- 




o 




e 


a 
















o 




c 


3 




















— i 


2S 
















* 




Eb 


















o 




r-l 


















c 




f-l 


I- -o 
















r-l 




«C 


© c 


















C*vO« 




O. -0 


J» 


0> 


•ST 


^— 


o 


^ 




•9 


o*M 




9) 


r— 


f- 


CO 


ON 


.^ - 


CO 




O 


^ 




-fc> 3 
















j-> 




S5 O 


o 


O 


o 


o 


^ 


CM 




a 


HH 




o .c 
















•t-t 


-**cW 




O f- 
















o 


ul 


4> 


















o 

91 


1)1 rt 


> 


















m 


^a 


o 


c 
















«« 


-t*-* 


■o 


o 
















c 


m aj 


c 


JD 


CT* 


t— 


o 


«n 


t— 


«— 




o 


Oi 


OJ 


s 


m 


vO 


t— 


r— 


t- 


«-- 




TJ 


0,3 


c 


3 

2 
















C 

o 


><-< 


o 


















o 


**.-« 


■r-l 




















— * — c 


r- 1 


t- "O 
















«k 


r-rf.O< 


r-l 


o c 
















>. 


-4 J* 


^ 


c aj 


:* 


O 


o» 


in 


CO 


CT» 




o 


J3*^ 


E 


n 


in 


vO 


tn 


in 


t— 


o 




> 


XJ-J 




** 3 


• 


* 


• 


* 


• 


• 




£. 


^ 


o 


») o 


o 


o 


o 


o 


o 


»— 




3 


-J»~4 


o 


O -C 
















CO 


■oi 


r— 


CJ fl 


















cJ 3* 


-«■ 
















• 


4) 


3J £3 


c 
















M 


C 


T* S« 


o 
















C 


o 


otot 


T-l 


«— 














■r^ 


JC 


u 


r-l 


c 














"O 


Q. 


CM of 


r-l 


<9 














c 


at 


X 


— • 


X» 


CO 


*— 


« — 


VO 


co 


■W 


o 


r-l 


trf"^ 


S 


E 


CO 


in 


SO 


vO 


vO 


vO 


Q. 


<o 




3 














n 


t-> 


^ a 


o 


2 














« 




U VI 


o 
















c 




«*» 3 


-»■ 



















t. 




C "O 














E 


*» 


Q* 


o 


© c 














b 


0} 


t* a 


J-> 


CL 3 


co 


r— 


vO 


O 


t^ 


CO 


-»H 


3 


a* o< 




a 


o* 


c* 


O 


O 


^■ 


CM 


V. 


■o 


j-*o» 


m-»-> : 


* 


» 


• 


« 


m 


• 




c 


J* 


• 


» o 


o 


o 


r— 


^~ 


T» 


CO 


«4 


r-l 


•^1 


CM 


o .c 














O 




■*»-o 


















"3 d 




















4-» 


&4=3< 


e 
















JO 

s 


r-l 


1 3 


o 
















3 


t4 


' *3 


•r-l 


^-> 














C 


JO 


cm ,-3 


r-l 


c 
















<• 


— aj» 


r-l 


• 














9 


■r-l 


1 col 


■v-t 


J3 


co 


f- 


CM 


CO 


vO 


CO 


JC 


-J 


> 


e 


E 


»— 


»— 


CM 


CM 


CO 


CO 


*3 




1-1 ni 


in 


3 
2 














« 


J-> 


ci] ** 


• 
















<o 


o 


J OI 


CM 
















J-> 


3 


CQ m 


-W> 
















<d 


•o 


«x 




C TJ 














o 


o 


1- c» 


c 


37 C 














■»< 


c 


-« 


a 


Q. aj 


o 


«■ 


O 


CO 


CO 


CM 


■o 


a. 




j= 


» 


9— 


^» 


O 


VO 


in 


CO 


e 






jj 


*> 3 














«r< 








X> O 


*— 


»— 


V— 


•— 


CM 


in 








» 


O -C 














c 


•• 




3> O t-» 














« 


<• 




© 
















jO 


o 




J 
















E 
3 


c 

3 
O 
CO 






(. 


*" 


CM 


co 


•«■ 


in 


vO 


1 


1 






31 


r— 


r— 


t-- 


t— 


r— 


r- 










9 


o» 


o» 


Cf\ 


cn 


CT» 


Ov 










X 














1 





vO 



IV- 3 3 



c 








V 


O^XSiO 


a- oovo a- oo 


o 


£1 


f\J t— r- «— 


»- 00 *- r- 


*»■ 


B 






•— 


*£> 3 








t- z 








o> 
















^-N 


CJ\t— i- VO 


woiain'- 


m 


o 


t— vo oo in 


■3" 00 CO r- r- 


in 


o 


• • • • 




• 


o 


«- r- p- 00 


inruo--"- 


LCI 


«» 




«— «— r- 




v " 








,_ 








t. 








<u 


«- -a- in a- 


onr- vo oo o 


p- 


J3 


C\J *— r— r- 


t— rvj t— i— *— 


OO 


e 






*— 


in 3 








r- Z 








O 
















^•N 


m ooo co 


moo oo p~ in 


CO 


o 


<DvOCO O 


^o t— in oo o 


oo 


o 


• « • • 




■ 






M 


1 


jj 




-r-1 


r- 


c-H 


a- 


•H 




-O 




U 


t) 


•H 


0) 


J|H 


(fl 


-U 


CO 



r- a- -=r t- 



vOl^oOvO 



oop-a- .— o 



in 
co 



o o 



o 

3 

O 
£- 

o< a. 

t- 
V 
> - 



in 

wl 
i o 
I o 
• o 

oo . 

I *5 

M t-| 

U] 
-J 
CD 



m 


«- Co CO c^ 


.O 


(M «- t- 


s 




on 3 




p- z 




o> 








1- -^ 


VO«3r-^ 


(tl o 


in a- cmd 


<u o 


» k • • 



iT vO 00 p- O •- 

a «— <\j «— in <y> 

•- I- CO (\J VO r- 



<- p-r- o ct> 



vo in on oo 
r— m ^£> cr* 



oo p- in -a- on 
o o o o eg 



oo •— oo oo o 



cr> in o> CT* oo 



»-0O (MOr- *- 
vO oo vo CT* vO *o 



b 
4> 
JO 

8 

a> 
o 

V 

a 



c 
o 

T3 

t. 
O 

o 



« 

> 
• t_ 

00 3 
C CO 

■a «> 

c c 

o o 

a. jc 

n a 



c 

<u 

J3 
B 

*- 3 

t- Z 



r- <- t- ,- O0 



O>00 p-«3 in 



t- 



a- vo t- on 
invo O r- 



O O 00 r- 



vo p- coco oo oo 
a-ointMr- oo 



i-ft-NO «- 



« 3 
O T3 

B 
t- t-l 

S -w 







t. 


r-l 




c 


in 




in 




>■> 




<U 


<fl 




<u 


j-> 




4> 


4J 


L 


n 


c 


a 




c 


c 


a 


4J 


O 


O 


jj 


•w 


•H 




o 


a> 


V 


(4 


3 


OO 


o 


x: 


10 B 


m 


ana 


c 


•w 


O 


•o 


<u 


3 


o 


»1H 41 


4-2 


EHll 


o 


t, 


•H 


O 


J-> 


■o 


s 


OO (U J= 


O 


O B O 


a. 


o 


•o 


c 


(0 


o 


e 


C 4> O 


3 


0} O O ^1 


e 


00 


C 


0- 


o 


L 




•H J= 


T3 


t. -rl > 


o 


41 


t-l 






O. 


r-l 


•P 1 ^ 


O 


1> u -*-> 1* 


CJ 


4J 






±> 




cd 


in .a 


L. 


3 > 3 T3 




(fl 


c 


•• 


o 


T-l 


-rH 


(0 00-H 


a 


O -H 0) 


t> 


CI 


4) 


m 


3 


a 


t. 


act. 




B •>-> O r-l 


<~ 




JQ 


o 


T3 


■H 


4J 


•W 4J 


L. 


O !fl .T> 


Tl 


f-4 


B 


«- 


O 


c 


11 


Hum 


<U 


t. a a o 


L 


r-l 


3 


3 


t. 


4J 


3 


(8 C 3 


E 


4) O t- ^l 


O 


< 


Z 


O 


Cu 


n 


T> 


*JHD 


3 


3 4J cfl T3 


t. 




r- 


CO 




3 


a 


0) t- C 


J) 


o sj: « 


•H 










•o 


n 


a: o m 


C 


o_ «t a. x «c 










c 






O 














M 






o 













IV- 3 4 









0) 






















4) 






















<H 






















&.•- 




















O 


c 




















bO 


CD 


cr\ 


m 


t» 


00 


CO 






• 




a> 


jO 


m 


x> 


OO 


o 


o 






vO 




■U 


E 


t— 


*• 


»— 


CM 


CM 






f- 




CO 


3 
















ON 


<o 




o 


Z 
















r— 


> 
























•H 




o 


















C 


CO 




N 


















<0 


c 




■H 


X 
















x> 


V 




CO 


<U 


in 


in 


f- 


ON 


vo 






s 


sz 






■o 


r— 


O 


cm 


=r 


OO 






CO 


co 




i-l 


c 
















o 


u 




cH 


M 
















co 


o 




< 


















a 


E 
























o 






















4 


a 






















• 




t 


















o 


ya 




> 


















c 

M 


o 




O 




















m 


w 




i~ 
















0) 


*> 


4X 




•o 


c 
















CO 


CO 


*a 




c 


<u 
















4J 


o 


COI 




(0 


.O 


=r 


if 


t» 


CM 


ON 






CO 


o 


o 






E 


t- 


00 


oo 


ON 


00 






>H 




C 


3 
















O 


cj cd 

i-4 N 




o 


Z 
















O 




•H 


















CO 


•H 




t-H 


















0) 


n 


tOl 




r-l 


















< 


4> 




•H 


X 


















W 


3 


E 


<u 


ON 


in 


=t 


O 


t- 






c 


C 




■o 


o 


o 


CM 


sr 


vo 






o 


co 




O 


c 


• 


• 


» 


9 


• 






•o 


.c 
o 


v£)IO 


o 


M 
















Li 
O 


Mo 


«» 


















o 


fc. 


1 • 






















to 


(VI 


r~ 




















«• 


a> 


t» 


II 




















>« 


>H 


cr 


c 


C 


















CO 


1 r- 


cd 


o 


















> 


ij| V 


<o 


•H 














• 




t- 


>-t 


iH« 














bO 




3 


». * 




r-l 


t- 












c 




CO 


CJ CO 


S. 


•H 


<u 












•H 






C0| t 


o 


B 


JO 


on 


in 


«~ 


in 


m 


T> 




CO 


<w a) 


■H 




E 


CO 


in 


t— 


t- 


t- 


C 




c 


x| > 


C 


O 


3 












O 




o 


o 


a. 


o 


3 












a 




c 


<u 


O 


^> 


*— 














7) 




a 


bf 




«¥ 














<U 


CO 


CO 


CO 


> 


















&. 


s: 


r-l 


f- 


4J 




o 


X 














*j 


CD 


<u 


<H 




*> 


a> 


vO 


CO 


=r 


r— 


ON 


CO 


c 


H 


> 


r-( 






•o 


m 


o 


*— 


t- 


CO 


s 


o 




< 


•Hi 




in 


c 












L 


s 


>» 


J3 


















■H 




c 


M co 

OJ-H 




CM 














♦i 


ON 


4-> 




«»■ 


















ai 


J 


















it 


*> 


3 


CO 


















O 


CO 


•o 


co 


r-l 




















c 


c 


X 


CO 




c 














u 


•H 


M 


co 


J- 




o 














V 


♦-< 




-o 


co 




■H 














a 




>» 


c 


c 




rH*- 












8 


CD 


*i 


M 


V 




r-l 


u 












3 


J3 


•H 


» C3| 




ft 


CO 












C 


■U 


r-l 


1 


B 


XI 


o 


=t 


on 


«-• 


vO 






•H 


• 




E 


cm 


CM 


CM 


=r 


sr 


a> 


o 


X> 


SI" 


in 


3 












jC 


4-> 


CO 


*— 


• 


Z 












*J 




•H 


1 


cm 
















c 


J 


> 


-«» 














n 


•H 




M 


c 


X 












CO 


cd 




W 


CO 


CO 


a* 


in 


oo 


m 


t«- 


CO 


i. 


3 


J 


x: 


•o 


o> 


On 


vO 


m 


»» 


O 


4> 


■o 


00 


4J 


c 


• 


• 


• 


» 


• 


■H 


a 


o 


< 




M 


o 


o 


»•• 


r— 


CM 


X) 




u 


H 


01 

0} 

o 

-J 












1 

1 

CM 1 


c 

•H 

J- 

CD 
D 

E 


CO 

c« 

•o 

x> 

r- 


a, 

• • 

CD 
O 

it 








cm 


m 


=r 


in 


tO | 


3 


ON 


3 








s» 


t— 


t— 


S— 


t— 1 


Z 


r— 


O 








i 


I 


1 


i 


1 1 


*— 


CM 


CO 








t^ 


CM 


oo 


=r 


in i 














t»- 


t- 


t~ 


t- 


i- i 


















on 


ON 


ON 


ON 


ON 1 









IV- 3 5 



1974-75 and 1975-76. It should be noted that the data shown 

represent average indexes of current year costs to prior year 

2 
costs across all firms within a specified size category. Prior 

year costs in each calculation are set at $1.00. 

How have deductible limits, retention levels and policy 
restrictions changed over the past 5 years among 
responding firms? 

As shown in table IV-15 deductible or self-insurance 
retention levels changed only moderately during the period 1971 
through 1975. Most of the large increases among firms reporting 
non-zero retention levels have occurred only during the past 
year. Retention levels have been consistently much higher for 
firms with over $100 million in sales than for firms with less 
than $100 million in sales. Further, a much larger percentage of 
the large firms (approximately 55 percent in 1976) reported any 
deductible limits than the small (24 percent) or medium-size 
firms (37 percent). 

Reported limits of liability per occurrence for primary 
product liability or CHL coverage, by size category, are shown in 
table IV-16. These limits have not changed significantly during 
the period 1971 through 1976. Firms with less than $2.5 million 
in sales reported consistently lower limits of liability per 
occurrence than the larger firms in the sample. 

Table IV-17 presents limits of liability per occurrence for 
1976 by product and size category. Significant variation exists 
across product categories and within product categories by size 
of sales. The metal castings, industrial chemicals, and aircraft 
component industries reported significantly higher limits of 
liability than the other product categories. The limits of 
liability were, in most product categories, highest for larger 



2 
These indexes can result in fairly significant differences from 

indexes of average current year costs to average prior year 

costs. The latter types of index is weighted by the size of 

premiums in both the current and prior years. 



IV- 3 6 



a 
B 

3 
Z 


00 CO 

r- a- 


mm 
»- cm 


ooo 


CM^T 

a- t— 


O 

o 
o 


^ in 

« • 
oo a- 

in CO 


(\J o 

ft- CM 


cm 

coa- 

a- t— 
oo 


cmvo 

O <M 
crvrn 

CM 


[ft 

<u 











n 
o 

L 
<u 

■o 

> 
o 

B 
<0 

C- 



B 



o 
o 



OO o 
CM 



I c 

4- •- 

rH 

col > to 
co) t- 

O.H 
U bi O 
Ol tOTJJ 



<0 i0 



8 

t- z 
cm 



J. 

t in 

CO £> 

V B 
X CO 3 

t- Z 



r- 00 

t-O 

CM 



CM CM 
000 



O oi 



c 

(0| to 

</i\ <n 

3 
Ol >tO 

uj -— » 
to 



M 



tu 

B 
CM 3 

t- Z 
CM 



M 


C 




10 


U 


a 


J 


B 


oa 


3 


«* 


«- z 


!-• 


t— 























4> 


O 






















TJ 


O 
0) 




W3- 




t— co 






•=r in 




CO CM 




O 


n 




t- CO 














cm in 




O 
O 

O 

in 

t— 


c 
o 
■o 
tft 




(*1(M 




oooo 






cot- 




in oo 




«> 


o 
























CJ 




in<o 




vo t— 






o o 




o t- 




to 






to o 




•— a- 






•— 




OJ» 






• 




CM 
















be 


•o 

V 

n 
to • 


CD 

> 

3 




*— r- 




oo co 






«— at 




OtD 


c 


j=o 


CO 




»- co 














CM^r 


i-t 
•o 
c 
o 
a 
n 


oo 
t-o 

3 - 
CXt- 


« 
c 
o 

JC 

a 




^T 9 




ft- CM 






ft- CM 




CMO 


to 


JZ «. 


to 




m • 




ft ft 






• • 




ft ft 


c_ 


o to 


r-l 




oo =r 




f-in 






o to 




POCM 




■H XI 


CO 




co •— 




a- 






r— 




cm in 


CO 


s: c 


H 




CM 
















s 

•H 
Cm 


S 3 
O 

■h n 


c 

4J 

cq 

3 




r- r> 




ino 






«-«■ 




t--«- 


O 


«-.r-l 


■o 




«~ CM 














•-■=r 


to 

e 


•H 
.0 

to t-i 

c 

O to 


C 
M 

>» 

4-> 




=T CO 




t--CO 






«- CM 




ino 


3 


4-> 


•H 




• • 




• • 






• • 




« • 


c 


to 


•-I 




oo =r 




int- 






o cm 




VO •- 




o t- 


•H 




on in 




m 










cm in 


<0 

JS 

4J 


to 

60 

to to 


JO 

CO 
t-l 


c 


















B) 


3 I- 




CO 




c 














V 


T3 to 


jJ 


> 




o 










n 




■U 


> 


o 


o 


t-i 


1-1 


M 






M 


to 


M 


to 


CO 


3 




CO 


»H 


CO 






PQ 


•h 


PQ 


o 


0) 


•o 


•o 




r-4 










(. 




1-t 


■H to 


o 


c 


>>•« 


■H 


>■,•« 






>■>•« 


o 


>>•» 


•o 


JC 


(ft 


to 


c 


s 


c 


in 




L 


DO 


t. 


c 


4J 


cu 




3 Q 




3 Q 


« 




3 O 


to 


3 Q 


■H 


to 




c 


•*"> Cu 


o 


t-jCu 


CM 




•oa. 


4J 


ft-jCU 




to - 




o 


c 


o 


c 


*» 




C 


tfl 


c 


f- 


CO c 


• > 


•H 


i-l T> 


r- 


•H 13 






■H "D 


CJ 


•H T) 


to 


CO o 


CO 


rH 


to 


«» 


(0 


c 




to 




to 


D 


t. -^ 


o 


.H 


>, C 




>. C 


to 




>. C 





>, C 


6 


o *> 


c 


1H 


•H tH 


o 


.H -H 


JC 


c 


.H H 


tl 


■H »H 


3 


C CO 


3 


H 


•H JO 


J-> 


i-l £> 


4-> 


o 


•H /5 


H 


H-t JO 


z 


t-trH 


O 




•o e 




•O E 




•M 


T3 e 


O 


•o e 


r- 


CM 3 


CO 


O 


o o 


in 


O O 


0} rH 


o o 




o o 




O 




o 


PQ U 


■ 


CO O 


to rn 


CO u 


^-1 


m u 




r-i 




1— 




CM 




«> i-t 




rH 






tO 




*» 




■» 




-] 


B 




< 






O 





IV- 3 7 



«- 






- 




V 










a 


o o 


OO CTV 


00.5J- 


vo m 


B 


moo 


mt— 


rv) m 


O-v ON 


3 








t— 


vO -Z. 










!— 










o> 










r- r~* 


m a- 


■3- »- 


ino 


t- 3- 


o 


■a- in 


h- O 


oO>- 


r- JT 


o 


a- •— 


mCT. 


mvo 


^vO 


o 


» - 


* 




» 



c. 










4> 










o 


(M »— 


CO t— 


t— m 


1— «- 


B 


moo 


mt— 


c\j m 


On On 


3 










U1 z 










f~ 










o> 


oo r- 


o o 


On ON 


oo O 


T— ^-» 


<V ^ 


o t- 


vO m 


On =T 


o 


m o 


a- 1- 


mvo 


vo in 


o 


M M 


» 




« 


o 


<— a- 


r— 




Cvl 


«»• 











O 


a- t- 


invo 


moo 


r\i •- 


e 


m t- 


m>o 


<M c\j 


ON t— 


3 








^ 


2 










^ 


T- VO 


mvo 


i- t— 


On<\J 


o 


On (M 


o o 


m^r 


r- rvj 


O 


CM »- 


3- t- 


mvo 


t— vo 


O 


* M 


M 




■> 


«» 


«- JW 


•— 




rvj 



V 

a 

s 

1> 
O 

<a 
a 



f. O 

ID E 

4> 3 

xmz 



m ro 

m r— 



i-lojvU on 

ott* oi «— • 



oo o 
o m 
.=»■ vo 



a- f- 
mt-. 



on o 
o t- 

«- m 



•- m 
m vo 



o vo 



oo a- 
t--o 
mvo 



On On 



c-- t-- 

ON«— 

mt— 



oo o 

=r in 
moo 



oo r— 
mt— 
moo 



oo a- 
oo in 



a- o 

ON rvj 
VO t— 



t- O 



on f- 
mvo 
vo in 



o in 
c— rvi 



oo ON 
vo o> 
vo in 





o 




o 




n 




m 




< 




c 




o 




•o 




t. 




o 




a 




a 




>. 




41 




> 


• 


(. 


bo 


3 


c 


to 


■H 




■D 


V 


C 


c 


£> 


o 


a 


J3 


■n 


a. 


4> 


4) 


i. 


r-l 




4) 


n 


{-• 


a 




c 


>. 


■H 


(. 


vV< 


t> 




9) 


'«-. 


3 


O 


T3 




C 


c 


M 


4> 




O 


>. 


E 


4J 


3 


■»< 


C 


.-1 





c 


















<n 






4) 




a 














V 


U 




> 




o 










n 




u 


O 




O 


M 


•H 


M 






l-l 


4) 


H 


<o 


3 


>• 




n 


r-l 


03 






m 


■^ 


to 


o 


U 


(. 


■o 




rH 










C 




^ 


o 


o 


c 


>. «B 


iH 


>.•» 






>>•» 


o 


>.•« 


13 


K. 


bO 


!fl 


C 


S 


C. 


in 




c. 


00 


(. 


C 


PL, 


4) 




3 Q 




3 Q 


* 




3 Q 


4) 


3 Q 


■H 




j-> 


c 


i-> cu 


o 


•*->o. 


rvi 




■*-)Cv, 


<J 


na. 






09 


o 


c 


o 


c 


«» 




c 


<d 


S 


K. 


•• 


L> 


•rf 


■H T3 


^ 


■H T3 






•H T3 


o 


i-l T3 


4) 


4) 




^( 


4) 


«>» 


4) 


c 




4) 




41 


O 


O 


4) 


r-t 


>, C 




>. C 


id 




>, C 


4) 


>. C 


B 


(. 


N 


•H 


-4 ^1 


o 


»-l -H 


jC 


C 


--I W 


N 


F-» T-4 


3 


3 


■H 


E 


-H O 


J-> 


■H O 


4J 


o 


-H O 


■H 


•h a 


SE 


O 


CO 




X) B 




T> B 




■w 


•o e 


01 


■d B 


^ 


CO 




o 


O O 


in 


O O 


») rH 


O O 




o o 








O 


oa o 


■ 


CQ O 


9) rH 


CO O 


f-H 


oa u 








r™ 




t\i 




4)-W 




r-( 










■» 




•» 




_) 


B 




< 









IV-38 











t- 




















a> 




cotr\mo 




O c» COCNJ VO 


m 








n 


.o 




CVJ «- t- m 




C\J (M(\ltM«- 


Os 








B 


s 










*" 








(. 


3 


















■H 


Z 


















Ct, 




















.-4. 




















.-» 


C0^> 




in t— o in 




m m=r a\0 


i» 








< 


4J O 
•H O 
B O 




<\J i- CTs»- 

on moo o> 

i— t— in 




•— •— t— m in 
oo o r-ONOo 

•- m 


VO 




• 
vO 






















L. 
















r- 




V 
















OS 




> 
















»— 




o 


,_ 














c 




■a 


L. 














4> 




c 


0) 














Xt 




CO 


O 




in t~- «- o 




in <\j t- o a\ 


o 




B 






S 




r- i— 




«— r— «— 


00 




4) 




c 


3 














O 




o 


Z 














4> 






■H 
















a 


4> 




r-l 


















o 




.H 
















•» 


c 


H 


■H 


M'-n 




O OO o o 




OrOt-O*" 


.3- 




• 


<D 


c. 




E 


4J O 




in (\j o «- 




t— VO f\JOO r- 


in 




a 


t_ 


o 






•H O 




(JiCOOO 




v£> OO 0"> 0>vO 


I™ 




a 


t- 


tx 




O 


EO 




•» « M «k 




* 


* 




M 


3 


0) 




o -ri -vy 




•— sr in *- 




in 


=T 






O 


4J 




« — 


J^- 




«— !■• 










CO 


O 


CO 




■w- 
















<o 


o 


o 




















4J 




















CO 


M "1 


















T4. 


4)1 4* 


c 
















o 


o<H 


o 
















o 

CO 


H t/>| 


rH 


r™ 














CO 


j3 ^ 


f-H 


C 














< 


•r^ TJ CO! 


■H 


a> 
















rHi C|t- 


E 


.o. 




r- in omti 




o o oo o in 


o> 




c 


•H 


an mi 




e 




r- 




T— «— ^ 


t~ 




o 


n 


H 


O 


3 














T3 


ffl 


4J(H 


O 


Z 














t. 


•w 


ojo 


r- 
















o 


j 


sra 


-W- 
















o 


M Ol<i-i 


o 


0)— s 








o o mo o 


r— 




- 


o| tjo 


4J 


4J o 




vOOOClN 




o vo us m%o 


o> 




>> 


o,| 




•H O 




COVOOfl 




r~ zr mo en 


Os 




4» 


ml in 


LO 


E O 




in o><o o 




n n •. «. 


•» 




> 


4-3 > 


T5 


• 


i-)-*> 




•» 




r* t™ ^~ 00 


r— 


• 


u 


•Hi £ 


C 


C\J _4>^ 




-=r 








bO 


3 


i-d m 


(0 


■W- 














C 


CO 


CO 
















f-t 




_)l 00 


3 
















•o 


4> 


'"v 


O 
















C 


C 


4> 


Q 


.c 


c 














O 


O 


br 


Cu 


•m 


o 














a 


J2 


vO 




iH 














to 


a 


L 


•D 




r-l 


r* 












4> 


CO 


0> 


0) 




r-« 


t, 












t, 


t-i 


> 


C 




t-f 


a> 














4> 


<c 


■H 




E 


o 




a- roroin 




in *4D -a- (\J CM 


a- 


CO 


H 


1 JCX 






E 










on 


s 




1 E 




in 


3 












t. 


>» 


• o 




» 


Z 












iH 


d 


t- o 




<\J 














«M 


4J 


r— 


■W- 
















CO 


1 
















<w 


3 


> vO 




C 


C0'-» 












o 


TJ 


m r~- 




(0 


4J O 




in on poo 




t-sinoo 


o 




c 


o 




£ 


•HO 




t— OO OO v£> 




CJivO h-oin 


r— 


c 


M 


td t- 




4J 


E O 




cm mcnm 




en in t»--=r vo 


vO 


4) 




J 




■rA-Vt- 




•» 








o 


>> 


CO 


(0 J 




r— 








e 


4-3 


«c 


(0 














3 


•H 


H 


a> 










(0 

4-3 

c n 


1 


c 

4> 

X! 

4-3 

CO 


•H 

ja 
cO 
•H 






>» 




<0 CO 




4) 4-3 


O 


4) 


4-3 






u 


oo 


C O 




c c 


4J 


4-3 


o 






o 


4-3 


•H ^l 




O 4> 


CO 


CO 


3 






bo 


o 


j3 me 


to 


Ol CO CO C 


o 


o 


•o 






<u 


3 


o co r-t <y 


4-3 


BH4IO 




•H 


o 






4-3 


•o 


CO W> (U £ 


V 


O (0 O Q. 


4-3 


■o 


L 






CO 


o 


E C 4) o 


3 


n o o -h s 


O 


c 


a. 






O 


t- 


•w x: 


•o 


t. -H > O 


3 


•H 










a. 


Hi> 3H 


c 


0) O , J () (J 


•o CO 










4-3 




CO (0 CO 


L 


3 > 3 O 


O 4) 


t, 


•• 






O 


rH 


•H ca bO-w 


a 


O -H D 4J 


C -r4 


4) 


CD 






3 


CO 


L O C C 




E 4-'> O r-) vw 


a l 


JO 


O 






■D 


■H 


4J ^ 4J 


c 


O CO .-fl v0 


o 


s 


c 






O 


t, 


CO rH T3 CO 


4) 


C E S O U 


iH bO 


3 


3 






L 


4J 


3 CO C 3 


E 


a) o J. ta o 


t-4 


Z 


O 






a. 


CO 

3 

•o 

C 


T> 4- 1 -H "D 
C <U t. C 

M s a M 


3 
CO 

a 
o 


3 4-> CO T3 t. 

O 3 .C CU-H 

0-. <: a. s «< 


«c 


r~ 


CO 












M 




o 











IV- 3 9 



firms. In all categories, (except pharmaceuticals^) the. limits of 
liability per occurrence were lowest for firms with .less than 
$2.5 million in sales. 

The most frequently cited restriction covering primary 
products liability or COL insurance coverage was the exclusion of 
specific products (see table IV-18). Over 10 percent of firms 
reported such restrictions. Further, 23 firms reported that 
during the past two years they had decided to discontinue 
production of products because of product liability problems. 
Twenty-six firms reported a decision to cancel or postpone 
introduction of new products because of anticipated product 
liability problems. 

Cost per $1,000 for umbrella coverage, by sales category, for 
1971-76 are presented in table IV-19. Significant increases 
occurred only during 1976 for medium and large firms while there 
was essentially no change for small firms during this period. 
However, the rates for large and medium firms are significantly 
less in all years than the rates for small firms. The difference 
in rates for umbrella coverage is less pronounced than for 
primary product liability coverage between large and medium size 
firms. 

What was the claims experience of responding firms by 
product category and sales volume over the past 5 years? 

The number of firms reporting any claims during the period 
1971 through 1976 is shown in table IV-20. Responses indicate 
that less than 18 percent of firms with less than $2.5 million in 
total sales experienced any claims during this period. The 
corresponding figures for medium and large firms were 
approximately 50 percent and 96 percent, respectively. Claims 
attributed to the nine product categories are also shown. About 



IV- 40 



4J 




c 




<D 


> 


U 


u 


u 


o 


a 


17 


u 


C 


■Li 


§ 


£ 



•ihIq 



co <u 

dl D" 

« k 

I u 

• 4) 

00 t> 

•-H o 

I cj 
I 

> 



►J 

m 



c 




0) 


r~ 


CO u 


• 


e wi 


CM 


u CD 




--H CU 




Gui 




i-H 




.H U 




< o 




JQ 


<* 


e 




3 




z 




Vj 




01 




> 




o -w 




c 




-U 01 


<N 


c o 


• 


CO VJ 


in 


0) 




c o, 




o 




■«h 




i-H 




i-l U 




•»h o> 




e J3 


vo 


e 




O 3 




o Z 





o 



IT) 



c 
o 

r-t 4J 

r-4 c 

•H 01 

e o 

u 
o o> 

o Dj 

r-4 
W 



H o 



O U 

01 

-O 

in e 

• 3 
CM Z 

to- 



c 
o 

•iH 

1-1 4-> 

•-H c 
i-i 0* 

e o 

u 

in ot 

• cu 

CM 

v> 

C U 
(0 01 
JC jQ 

■»j e 

3 
OT Z 
CO 



m 


m 


o 




•»» 




CM 


vo 
en 

i-H 
Vj 


i-H 


en 


r~ 


0) 


• 


• 


• 


JQ 


C* 


o 


00 


e 


i-H 






o> 
u 

01 

a 

• 


CM 


i-H 


o 


o 


CM 




i-H 


c 

t-H 

m 
a* 

4-1 

(0 

1-1 

o 
o 

CO 

a 

< 


CM 


00 


o 




• 


• 


• 


c 


ON 


o 


in 


o 

■D 
VJ 
O 

o 


I-H 
r-4 


i-H 


vo 


01 

> 

Vj 
3 
CO 

C) 

c 
o 

jC 

a 

0) 

i-H 


ON 


O 


<Ti 


0> 


• 


• 


• 


Eh 


l-H 


i-H 


co 


>■ 
Vj 
4J 
(0 

3 

■o 

c 


CM 


i-H 


^ 


t-H 

>i 
4-1 
1-4 
^H 
iH 
X> 
(0 







1 

o 




1 

o 






Li 






Vj 




Vj 






O 


c 0> 




a 




a 






3 


o tr 


r-l 












■D 


(0 


(0 


•o 




» 






O 


OT Vj 


IT CO 


i-H 




01 






Vj 


c o> 


01 4J 


o 




c 






a. 


O > 


,-H OT 














•H O 


O 


vu 




14-1 








4J CJ 


VVJ (J 


o 




o 






•■ 


U 


O 












01 


••H 4J 


0> 


c 




c 






u 


Vj C 


01 OT 


o 




o 






Vj 


4J 01 


tr c 


•H 


CO 


iH 


CO 




3 


OT Vj 


<o o> 


CO 


4J 


CO 


4J 




O 


0> Vj 


Vj vm 


3 


CJ 


3 


o 


Vj 


CO 


os 3 


0> 01 


i-H 


3 


i-H 


3 


01 




CJ 


> *o 


u x; 


U <D 


£ 






o 


X 




X 




4-* 






CJ 


u 




Cd 




O 





IV-41 









L 
















t. 






4) 


=t 


O 


in 


on 


CM 


in 




4) 






J2 


r— 


J» 


vO 


O* 


o 


IT 




i3 






E 


r— 


i— 


»— 


T— 


CM 


r— 




S 




CO 


3 
















4> 




s 


2 
















O 




fc. 


















4> 




•rt 


















Q 




Ct, 


0) C 
















^ 




fH 


Q. CO 


o 


LTi 


ft— 


oo 


t~- 


CO 




• 




r-t 


CO 


t— 


t>- 


CO 


vO 


t— 


on 




O 




<C 


■U 3 












• 




c 






CO O 


o 


O 


o 


O 


o 


»— 




M 






O -C 






















C_> H 
















CO 
4> 






r— 
















CO 


•> 


t, 


c 
















•H 


o 




4) 


4> 
















O 


o 




> 


JO 
















O 


o 




O 


E 


vO 


t— 


VO 


on 


in 


CT\ 




CO 


. 






3 


t- 


co 


0> 


o 


o 


o> 




CO 


1-1 




•o 


Z 








ft— 


»— 






< 


-Ml 




c 






















«J 


















c 


a 


C 


















o 


Ol 


O 

•H 


<U C 
















Li 
o 


CO 




rH 


a co 


in 


•=r 


& 


CO 


-3- 


ZT 




o 


J-> 




r-l 


CO 


■=T 


•a- 


-=T 


en 


on 


CO 






CO 




•H 


4-> 3 


• 


• 


» 


« 


• 


• 




•• 


o 




E 


CO o 


O 


o 


O 


o 


o 


o 




>. 


c_> 






o sz 
















4) 


a> 


vO| 


s u 
















> 


tr 


I 


r— 


















3 


<fl 




-W- 


















00 








r _ 


















> 


« — 




c 














• 


4> 


< 




a 


4> 














b0 


C 


> 


o 


£} 














C 


O 


4> 


L 


•H 


s 














•H 


jC 


be 


O 


r-l 


3 


o 


cm 


CM 


t— 


cr> 


on 


•o 


a 


cfl 


u 


r-t 


ss 


on 


.=r 


in 


VO 


t«- 


t— 


C 


4> 


£- 


<u 


•H 
















O 


r-t 


<v 


4-> 


s 
















o. 


4) 


> 


CO 


















0) 


H 


o 


o 


O 
















4) 




o 




o 
















c 






- 


C TJ 
















>> 


CO 


N 


«r> 


<u C 














CO 


&. 


r-t 


-I 




Q. CO 


f- 


o> 


t- 


in 


O 


zr 


5 


4J 


r-H 


00 


o 


CO 


■a- 


in 


•^ 


■=r 


vO 


•=r 


L 


0) 


V 




4J 


4J 3 


* 


• 


• 


• 


• 


« 


•H 


3 


-O 




in 


CO O 

o s: 


o 


o 


O 


o 


O 


*~ 


«n 


•o 
c 


F 




• 


C_> H 














Cm 


M 


3 




cm 
















o 




1 
1 


■*» 
















J- 


>. 


» 


















4) 


■P 


<X> 


















J3 


•H 


ft— 


c 


r* 














E 


r-t 


1 


o 


C 














3 


■H 


> 


iH 


4) 














C 


J3 


M 


r-l 


£) 
















CO 




r-t 


E 


CO 


ft— 


t>- 


on 


-=T 


m 


4) 


•H 


U3 


•H 


3 




r— 


»— 


CM 


CM 


cm 


JC 


J 


J 


s 


2 














*3 




CO 






















<: 


in 
















n 


■P 


E-« 


• 
cm 
















<o 


O 

3 




■*» t. -o 














(0 


•o 






4) C 














o 


o 




c 


Q- CO 


vO 


CO 


cr> 


ft— 


O 


CM 


•H 


c 




(0 


CO 


OO 


t- 


CO 


t>- 


CM 


in 


■o 


a, 




£W3 


• 


■ 


• 


ft 


• 


• 


c 






•u 


CO o 
O -C 


on 


CT) 


m 


CM 


cr> 


m 


•H 






» CJ 














c 


«• 




0) 
















4) 


4) 




4> 
















^i 


a 




J 
















S 

3 
3 


c 

3 
O 
CO • 






c 


r-» 


«M 


on 


.=r 


in 


vO 




vO 






CO 


f- 


C^ 


r~ 


h- 


r- 


c- 




t«- 






4) 


CTi 


OV 


ov 


o> 


a\ 


C7V 




<y> 








X 
















r- 



IV-42 







«3 














C 














<u 




vo ^r 




On *™ 






o 




• • 




• • 






in i. 




ir\» 




no no 






e a> 




in^r 




;» in 






■i- a, 














■H 














Cu 














r-l C 














r-t 41 














< o 




tr\ao 




r-O 






e 




co ^■ 




-3- CO 


• 




3 




f— »— 




r* r— 


NO 




z 










c-- 

ON 




c. 










u 




V 










4> 




> 










O 




04J 










E 




c 










41 




•O 4) 




vo -=r 




«- On 


O 




C O 




« * 




• • 


4> 




CO t. 




in -a- 




no in 


Q 




4) 




cr> 




t— cm 






ecu 










* 




o 










• 


vol 


■H 










O 


bf 


M 


H . 










a 


c 


1 


r-l I- 










M 


*-* 




•H 4> 












•U 


r~ 


S -O 




cr> in 




on vo 


to 


c 


cr 


E 




o 




CO CM 


4> 


o 




O 3 




r— 






4J 


a 




OZ 










cd 


V 


> 












•H 


PS 


t- 


■«• 










O 


O 












O 


to 


fad 












9) 


e 


4) 












GO 


l 


4J 


c 










< 


w 


COI 


o 












■j- 


a 


•H*> 










c 




t-* c 










o 


«-J«i 


r-i a> 




o =r 




o o 


•o 


Ol N 


■w o 




• k 




V * 


(. 


•^ 


B t- 




ON O 




o o 


o 


4-> 


oo 


4» 




-=r to 




rr no 


CJ 


c 




o a. 












o 


» 


o 










» 


o 


-of 


- 










>> 


£. 




«> 










4) 


CD 




L. 










> 


04 m 


O V 










c 


B 


4-> J3 




CO ON 




NO ON 


3 


T)M 


E 




in m 




^3- NO 


CO 


al to 


itn 3 












C0|rH 


• z 










4> 


u 


CM 










C 


t. 




«» 










o 


CO 


> 












J3 


-O 


u 












Q. 


E 


•t-i 












4) 


D 


H 


c 










r-t 


■z 


-I 1 


o 










4) 


S -Q 


■H 










H 


1 cfll 


i~l *i 












• -H 


»-l C 










N» 


O J 


■H 4) 




t— m 




^r no 


b 


CM 


E O 




* • 




• o 


■u 


1 4-* 


S. 




t~- CM 




CM t— 


to 


> a 


in 4) 




»-CO 




■— CO 


3 


i-t 3 


»a. 










X> 


■o 


CM 










c 


id O 


<*■ 










M 


_J c 














aa a. 


C t- 










>. 


< 


ca 4> 










*» 


H >j 


.c x> 




co •=»- 




cm m 


■H 


C 

<l 


+> e 

(0 

4> 

J 

9) 


n 


»-CO 


to 
±> 

O 

3 
"O 

o 


*-oo 


t-4 
•H 
O 

cd 

J 

4-> 
O 

3 
T3 
O 

c 




e 


4J 




a. 




• • 




-t-» 


a 








4) 




cfl 


3 




■a 




O 




rH 


■o 




4» 




C 




O 


o 




Nt-I 




3 
O 






a 


to 
v o 


O 


4) o 


CO 






r-t 


» z 


4) 


>* z 








iH 




a 












< 




CO 







IV- 4 3 



12 percent of firms with less than $2.5 million in» sales reported 
claims in these product areas, compared to MO percent with sales 
of $2.5 to $100 million, and 76 percent with sales of over $100 
million. 

The average number of claims pending per firm at the end of 
each year for the period 1971 through 1976, by product category, 
are shown in table IV-21. These data indicate a significant 
upward trend in the number of pending claims throughout the 
period from 1971 to 1976 (through the third quarter) for all 
product categories. Further, these increases have accelerated 
during the past two years. Consumer products, particularly, power 
mowers and automotive components, exhibit an exceptionally high 
number of pending claims for the period 1974-76. 

The number of pending claims varies significantly by size of 
firm as shown below for all firms reporting: 

Average Number of Pending Claims Per Firm 
by Size Category 1971^76 

Size of Firms 1971 1972 1973 1974 1975 1976 

Less than $2.5 million .01 .02 .03 .03 .06 .08 
$2.5 to $100 million .58 .81 1.17 2.55 3.18 3.46 
$100 million and over 13.79 17.17 22.38 39.52 46.82 65.01 



Source: Product Liability Industry Telephone Survey, Hordon 
Associates, Inc., December 1976. 

The proportion of firms in each size category in the sample 
would influence the averages presented in table IV-21. However, 
this does not appear to affect the results indicated since the 



IV- 4 4 



TABLE IV-21.--AveraKe Jjuafeej; OS. PgndtriR £laima 
fcy. Product Category 1971-16 



Product Category 

Industrial products 

Industrial machinery 
Metal castings 
Grinding wheels 
Industrial chemicals 



1971 
Number of . 

Claims/Firm Number 1 



1.9 
1.9 
3.6 

0.1 



36 
35 
25 
32 



Year 
1972 
Number of 



1973 
Number of 



Claims/Firm Number' Claims/Firm Number 



2.2 
2.9 
3.9 
1.7 



36 
35 
25 
34 



6.00 
3.9 
4.3 
3.2 



35 
35 
25 
36 



Consumer products 

Power mowers 6.2 

Automotive components 1.8 

Pharmaceuticals 10.1 

Medical devices 1.9 

Aircraft components 3.5 

All product cate- 
gories 3.5 



33 
26 
32 
33 
21 



273 



9.1 
3.3 
9.1 
3.7 
6.3 



4.6 



33 
27 
32 
35 
23 



280 



10.2 
4.0 

10.1 
6.4 
7.7 



6.2 



33 
27 
32 
36 
23 



282 



Product Category 

Industrial products 

Industrial machinery 
Metal castings 
Grinding wheels 
Industrial chemicals 

Consumer products 

Power mowers 

Automotive components 
Pharmaceuticals 
Medical devices 
Aircraft components 

All product cate- 
gories 





1974 






Year 
1975 






1976 




Number 


of 


Number 1 


N 


umber 


of 


Numbe 


N 


umber of 




Claims/Firm 


CI 


aims/Firm 


CI 


aims/Firm 


Numb 


7.1 
4.9 
6.6 
4.6 




36 
35 
25 
37 




10.1 
6.5 
7.3 

10.2 




38 
35 
25 
38 




18.1 
8.6 

11.4 
8.5 


39 
35 
25 
36 


16.9 




34 




19.3 




34 




48.1 


35 


32.2 

T1.3 

12.5 

8.3 




29 
32 
38 
23 




39.0 
12.3 
12.7 
11.0 




29 
32 
39 
23 




36.9 
13.7 
12.9 
11.3 


28 
33 
39 
24 



11.4 



289 



14.0 



293 



18.9 



294 



Number indicates the number of firms responding. 



IV- 4 5 



numher of firms reporting was quite uniform across the three size 
categories for all product groups. Further, the rate of increase 
in the number of pending claims does not appear to vary 
significantly by size of firm. 

Table IV-22 presents the average number of new claims per 
firm for the period 1971 through 1976. The 1976 data are for the 
first three quarters of the calendar year. There was a sharp 
rise in new claims for large firms between 1971 and 1972, but the 
data indicate no significant' change in tne number of new product 
liability claims during- the npriod from 1972 to 1976 for medium 
and large firms. There' were gradual increases for small firms 
during the entire period. 

The information on new claims, by product category, provided 
in table IV-23 generally shows a similar pattern. Increases, in 
new claims for the individual product groups either leveled off 
after 1972, or continued at more moderate rates in most cases. 

Pending claims and new claims directly related to. the nine 
product categories designated in the study are shown in table IV- 
24. New claims for large firms increased quite sharply during 
1975 and 1976. For medium and small firms there was a moderate 
increase throughout the 1971-^76 period. As shown in table IV-25, 
the largest increases for the designated product categories 
during the last two years occurred in automotive components. 

Table IW26 presents the average amount of damages sought in 
pending claims per firm by size category. The amount has been 
increasing significantly each year from 1971 through 1976. In 
1975, the last year for which all pending claims are reported, 
pending damages sought represented about .9 percent of total 
sales; for 1976 they will approximate 1.M to 1.6 percent of 
sales, while in 1971 they represented only .3 percent. 



IV-46 



c 
s 

3 



O 
CO 
CM 



O 
Ov 
C\J 



C\J 



c\» 



o 



o* 
oj 





-r< 
















L 




Cx. » 
















O 




E 
















jO 




•-t -r4 
















E 




.-« a 
















3) 




«S r-l 


!»■» 


c-» 


r— 


CM 


a*' 


CT» 




O 




c_> 
















O 






«■ 


o 


»— 


CM 


^— 


o» 




Q 




» 




r— 


•— 


r— 


•— 










a 
















— 




z 
















O 

c 
f-l 




u- 




















O C 
















a 




> a 
















a 




O Q 


O 


t— 


O 


w— 


ir> 


•=r 




*> 




E 


<o 


t— 


CO 


OO 


CO 


oo 




a 


M 


O 3 
















■^i 


n 


C Z 
















CI 





3 
















o 


3 


c 
















a 
a 


r-4 


O 1) 
















•< 


Ot 


"H E 

»-l ^ 
















c 


s» 


r^ * 
















o 


t*f> 


•^ ■-« 


^~ 


o» 


o 


CM 


CM 


tr» 




-o 


3PH 


E O 
















c 


1 




%o 


*o 


o* 


^~ 


OO 


r«-» 




o 


«~M 


o » 


^~ 


CO 


c> 


•ST 


m 


ro 




C3 


or- 


O 9 


















©> 


«- Z 
















a 


t>- 


••»■ 
















>» 


ot 


















a 


<a> 


















> 


ec 
















• 


t. 


3lO 


o- 














ee 


3 


za« 


o t- 














c 


CO 


9 


,-1 a 














■^t 




•oux 


i-l o 


CM 


■3- 


rr 


*o 


o 


ir» 


T> 


a 


ttJSl 


-< E 














C 


c 


SKJ 


-* 3 


r— 


r— 


?— 


^~ 


•— 


w— 


o 


o 


U 


E Z 














a. 


sz 


33 


S 














n 
o 


a. 

a 


• w 


.- a 
















a 


■ 


** E 














a 


t- 


• >i 


•r* 














E 




tNJ -0| 


o a 














£. 


>> 


nj 


.*-> i-t 


CT» 


CM 


cm 


CI 


«o 


CO 


■^1 


c 


i 


o 














S-, 


■k> 


>■ 


ir» 




r— 


r— 


<M 


^ 


^ 




a 


<-i 


CM O 














O 


3 

■o 


CO 


-«-Z 
















c 


-j 
















c 


•-I 


en 
















a 




«e 
















£> 


>> 


f- 


c 

o- 

.-1 a 














E 
3 
C 






.-1 J3 


o» 


o» 


o* 


O 


o 


o 


a 


ja 




~-f E 


0* 


CT» 


o> 


o 


o 


o 


j= 


a 




E 3 








•— 


«— 


^— . 


43 


-r< 




Z 
















^ 




«r» 














a 






• 














a 


*i 




CM 














*> 


o 




«»■ a 














a 


3 




E 














o 


T> 




C -r* 














~* 


o 




08 a 














TJ 


c 




.C .-H 














C 


eu 




*»o 


CM 


CM 


sO 


.sar 


OO 


t— 


ft 








O 


O 


o 


o 


o 


o 








» * 














c 


•• 




n o 














a 


a 




a Z 














£> 


o 




J 














E 
3 
Z 


c 

3 
O 

«o 




c 


^» 


CM 


m 


JW 


in 


vo 








4 


r— 


C— 


e— 


»*- 


t— 


r«- 








a 


o\ 


<y> 


O* 


o» 


CT> 


o» 








X 



















IV-47 



b 
4> 
a 

B 
3 



o>a vooo 
oimtM m 



o inf-co 



CM 



«> 

* B 
4> i-< 

z a 

O 



rncMv© m 

• % • • 
oinncoa 



vo o ma- o> 

• # • « * 

f> a r-mar 

r- r- pr| 



o> 









ft— 






















CO 










c 






















* 










« 




0\&- U5CO 




r- 




cm mt— oi 


















A 




mm<M m 




ro 




m mmrg 




o 




#s 










a 


















en 




« 








in 


a 






























t— 


as 






















« 


ft 






o\ 
























to 


VO 






ft— 
























cd 


P- 








co 




in co t-co 




vO 




CO vO ^^~ 




a 




t. 


0> 








B 


















* 




• 










» -t 




in CM p- vO 




rg 




ovcvi inov 




•— 




> 










4> CS 








r» 




t- m 






r- 




id 


b 








SB r-f 
























« 








O 






















<-t 


40 








•— 






















<0 


1! 








b 






















t. 


o 








« 




co a voco 




r- 




r- minon 




r- 




4> 


CO 








£> 




mmcM m 




ro 




m moricg 




o 




> 


Q 








B 


















CM 




o 








a" 


3 
























■k 






p- 


Z 






















CO 


■ 






OH 
























jS 


o 


CO 




ft— 
























4J 


e 


E 






CO 




«- avc— ct> 




p- 




inoci 




CM 






M 


•H 






B 




• • • « 




■ 




• • 


• • 




ft 




CO 




ctj 






3 -rt 




vo r- p- O 




<M 




Cvi mvo r- 




CM 




« 


CO 


•-* 






« id 




•— 




r- 




Cvl on 






ft— 




o 


4> 


Ol 


1 


b 
5 


Z <H 

b 






















3 
T3 
CO 
b 


«3 

cd 

■H 

o 
o 








CD 




r-a- vo co 




vO 




«- L03 <M 




m 




>> 


•9 


<m 


£ 




x> 




mmcM m 




CO 




m romrg 




ov 




rH 


to 


CT 




a 


















CM 




4J 


«< 






en 

p- 


3 
Z 






















C 

<d 


c 




> 


o 
























o 


o 




b 


























•H 


•o 




O 




n 




co cm vo in 




VO 




Ov r- 


«- OV 




»— 




Cm 


u 




t* 




B 




• • - « • 




• 




• » 


• • 




• 




■rt 


o 


z 


4» 




S -n 




vOt-vOOO 




r- 




in zr rvj in 




•- 




r; 


o 




4-> 




id cd 












c\j m 






«-• 




to 






(G 




z r-i 






















•H 


ft. 


s 


CJ 




o 






















CO 


>> 

CD 




•u 




























> 




o 




b 




















ft 


p- 


t, 




3 




4) 




coa-xjio 




m 




t- inoocvj 




o 


to 


<7v 


3 




•o 




43 




mmcvi m 




m 




rn fooocvi 




Ov 


c 


r— 


CO 


1 


o 




a 


















CM 


■H 






1 


b 


<\j 


3 




















•o 


C 


CD 


* 


a. 


p- 


z 




















C 


•H 


c 


m 




ov 






















O 




o 


<M 


2 


«- 






















o. 


>. 


43 


1 




a 




a- rnvo in 




p- 




O r- 


mo 




rr, 


CO 


t. 


a 


:> 






* -H 




• • <a • 




• 




» • 


• * 




• 


41 


O 


4> 


M 






4» CO 
Z r-( 




in ft- vo CO 




m 




a- cvi 
cm m 


i-vo 




O 


t_ 


to 

CD 


i-l 
CD 


U 






o 




















CO 


4J 


H 


-J 


























a 


cd 




m 






ft— 




















b 


o 


>. 


«* 






b 




















•H 




C. 


t- 






<u 




















Cm 


■n 


4J 








o 




co a- vo in 




in 




cy> en 


•- <T\ 




o 




o 


CO 








a 




mmi\l m 




trt 




cm innf 




CO 


Cm 


3 


3 






•— 


3 


















CM 


O 


TJ 


TJ 






p- 


z 






















o 


C 






ON 






















C 


t- 


H 






*~ 


CO 












CM 










o. 


>> 








B 




a co vo m 




t~ 




OCM 


CJvCO 




m 


e 


co 


4J 








S-H 




• • • • 




* 




• * 


• • 




• 


3 


Ti 


Ti 








4) c« 




a »o 




m 




a cm 


»— 




a- 


a 


4= 


rH 








Z r-t 












*— 










4J 


■H 








O 




>» co 

b i-l 

« <d 










CO 
4-> 
C 
4) 


1) 




eg 

4J 
CO 

4> 


o 

Cm 
CD 


43 

cd 

t-l 
4J 








>t 


co 


c o 










c 


4J 




43 


to 


U 








b 


4-> 


•H -H 










o 


(8 




cd 


id 


3 








o 


o 


£ CO B 


n 




1 


CO 


CO Q. 


O 




o 


b 


•o 








to 


3 


(1 IIH « 


*3 




B 


t-l 


« B 






■H 


CD 


o 








<u 


■o 


id bO 4) 43 


o 




O 


cd 


O O 


4J 




■a 


> 


(. 








4J 


o 


B C 4> O 


3 


n 


O 


o 


•^ O 


O 




c 


id 


a. 








0) 


b 


•W £ 


■o 


£. 




i-i 


> 


3 




•H 












o 


a. 


t-l 4J 3 r-4 


o 


V 


4) 


4-9 


4) 4-> 


T3 


CO 




3 














n ii .« 


b 


3 


> 


CO 3 


T3 Cm 


O 


4) 


t. 


O 


•• 








■p 


I-l 


h m Mt( 


o. 


OHUII 


id 


t -H 


CO 


^t 


4> 








o 


id 


t- o c t. 




E 


4J 


C O 


r-l (. 


O. t. 


43 




O 








3 


•H 


J-> ~H 4-> 


b 




O 


i> >d 


cd o 




O 


a 


CD 


b 








T3 


b 


co .-i -o <n 


<u 


£_ 


6 


C B 


o «. 


^1 


to 


3 


4S 


3 








O 


4-> 


3 CO C 3 


B 


U 


O 


O t. 


T4-H 


^1 




Z 


l-> 


o 








b 


co 


•O 4J -M T3 


3 


S -U 


Q. V 


•o< 


«S 




•— 


• 


w 








a. 


3 


c « t i: 


C4 


O 


3 


SI 


4) 




















■D 


M X O M 


C 


a. •< 


a, X 




















C 




o 




























M 




o 





















IV- 4 8 



B 
3 

•jy z 

t- 

oi v 

r- Mil) 
<0 B 

<U m 

> r~l 

< O 



3- On 



eg rg 



oo o 

CM r- 



o\ <Jn 
<M rg 



oo oo 

t-- in 



3 
Z 

to 

r— 

o> (U 

•- bO m 
TJ E 
£. -«-f 
<U CD 

> r-l 



O CO 
ON On 
r\J fNJ 



•- m 



co t— 



•=r in 
o o 



rvj (\i 
o o 



ON h- 

co on 
rg rg 



£- 


> 




Z 










<0 

1> 


t. 

o 


SI 


1 










X 


b£ 


1 


on 10 










V 




t- do a] 










M 4 * 


t- 


a) E 






rg rg 




oil on 


o- 


t. -H 


00 Ol 


rg o 


o o 


C->.=T 


0-|O|.- 


<D « 


• • 


• • 


• * 


* * 




> rH 


on ON 


Cg CM 




m ro 


to 


0^ m 


«* O 










e 


N <U 












w 


•hI-h 












iC 


co| l. 


c 










^i 


o 


0) 










o 


>< M 


J3 


rvioo 


c\j in 


(M <\J 


vo in 


■C3J 0) 


t. e 


^ f- 


■— r— 


O O 


oo on 


31 ^ 

tilUil 


<9 3 




»— r- 


I - * »— 


eg c\j 


0) Z 










z| «] o 












UH'P 


ctn V 










ol o 


t- OO 8) 










<m| 3 


<fl E 






cg in 




fc. 


0)T3 


C tH 


r-vO 


aioi 


o o 


»- on 


a> 


O 


D a) 


• • 


• « 


• * 


» * 


n 


ClQ- 


> rH 


t— on 






eg (\l 


E 


«« O 










3 


w| 












Z 


T3 












a-H <U 


c 










<U 


ifl)-<H 


ID 










bl 


Vw 


J3 


O vO 


mvo 


C\J f\J 


in a- 


HJ 


03 


•^ 


E 


t-t-- 


t— »— 


o o 


oo o> 


L 


E 


o 


3 




*— r— 


•— T— 


rg cnj 


0) 


i-f 


4> 


Z 










> 


.t 


D 


eg 










<M 


CO 


r— 










1 o 




ON 4> 










1 <w 


r- MB 










• b( 


c 


fl E 






eg o 




-r c 


•H 


C-H 


00 CO 


vo OO 


o o 


C7N0O 


CNJ -ri 


Z 


a> a) 


■ • 


• « 


• • 


* • 


1 T3I 




>.-i 


VO ON 






r- rg 


=> C 




«< o 










>-i <m 
















a. 




■"• 











CJ\ ID 

t- ton 

<4 E 

01 «J 
>r-l 

<o 



u 






oo rg 
o o 



«- rg 
o o 



N -H 

•h a 

oo 

o 
o 



ID 

•H (0 

O B 

•H 

bO <fl 

B r-< 

■H O 

•o 

4) u> 
0U Z 



in 
rg 



B) 

B 
tH 

<fl 
t-l M 

O E 



C » 

0) (U 

o» z 



C8 

r-l 0) 

O B 



1> 4> 

a, z 



») 




B 




T-t 




(0 




rH 


w 


O 


B 




■^ 


hO 


.D 


C 


^( 


•H 


o 


■o 




C 


s 


a> 


<u 


a. 


z 



a 

B 
1) 
O 

0) 



O 
O 

0) 
n 

«: 

c 
o 
n 
t- 
o 
o 



bO 3 

C CO 
i-t 

•O 4> 

C C 

O O 

Q. .C 

0) Q. 

<U 4> 

a 

in h 

B 



V- 3 

O ■o 
c 

« 






n 
O 

c 
a. 



e c 

3 3 

Z O 

*- to 



IV-49 





-Q 




B 




3 


^o 


56 


r~ 




o 


l> 


i— 


bo w 




B 




L fH 




4> (0 




> ^-t 




«* o 




._ 




b 




« 




jo 




H 




3 




SE 


in 




f- 




Ov 


4) 


r- 


60 <0 




cfl B 




t. .H 




CD cfl 




> ^) 




<S O 




,_ 




c 




4> 



roin «- •- 
c\j t- 



o t~->-vo 



co in vo t*- 
rofowm 



vol 

H 



- t— 
col o- 

e 

cfl 

•~i j-> 
o| o 

3 

<ul o 

Z| L 

ol xs 

<u 

c 

1) Li 



CTN 4> 

<- bo w 

<o s 

i. -H 

V CO 

> ,-1 

< O 



e. 

3 

Z| Q 

CO 

CD 



CO 
4) 



bf 


<u 


CO 


c 


J. 


■^t 


mi 


z 


> 




■*l > 


1 c 


1 o 


• hi 


in 4> 


<\j 4J 


1 CO 


S> 


o 



DO T> 

«e o 



O 4) 
■-MB) 

to e 
t. -^t 

CU (0 

> rH 



CM 

t— 
o> <u 

r- Mil) 

nj B 

4> CO 
> -H 

«* O 



vo mro«— 



c\i <\j mo 



vo i-^ms 
m mmmoy 



in a- c7m- 

00 C\J «- 



vo r- in mr~ 
en mmpnoj 



o> t~- in cm 

inio'- 



•-irMMr. 



oooaM 



vo »- m t- t-- 



MniniM 
• • • ' » 
oa- 



in i— in o t— 
m monmcM 



m cm ro 



co 
ct% 

CM 







L 






4> 


t-- 




J3 


ctn 




B 


cm 




4> 

a 
o 


a- 




o 


• 




c 


m 




M 

10 
4> 

(0 


in 




•H 


Ol 




O 


CM 




o 

CO 

■< 
c 

O 


CTv 




•a 


• 




b 


C\J 




o 

>. 
4> 


a- 




> 


CT> 


• 


c 


CM 


bO 


3 




a 


w 




■H 






■o 


<t> 




a 


c 




o 


o 




Q. 


c 


CO 


to 


a 


• 


41 


a> 


cm 


C 






CO 


H 




E 











X 



CT\ CU 
<- 00 0) 
cO B 

CU (0 
> ^1 



vO i- t-co 

» * • • 

CM •- 



o> mm <\j ct> 

r- vo (M m 



u 


























CD 


JO 




























C 


(0 




























4-J 


■^ 






>> 


CO 






















-J 






C 


t-i 














CO 


1 




CO 








4> 


cfl 














J-> 


4> 




4) 


j-> 


s^. 


in 


C 


o 














c 


4J 




U 


O 


t. 


*i 


•w 


•H 














4) 


c0 




CO 


3 


o 


o 


x: 


Cfl B 


10 




1 




09 


CO 


c 


O 







T3 


hO 


3 


o 


CO ^ 4) 


4J 




E 




.-1 


a 









•w 


O 


0) 


n 


cfl 


M J) c 


O 




O 




CO 





0. 


4J 




■0 


(. 


4-> 


o 


E 


C 0) o 


3 


CO 


a 




a 


■h 


s 


O 




c 


a. 


(0 


L 




•H C 


•O 


t. 






-H 


> 





3 




•H 




o 


a 


rH 


•U 3 M 


O 


4) 


CD 




j-> 


CD 





■o 


CO 










<fl 


CO cO 


t- 


3 


> 


n 


3 


•O 




O 


CD 


t. 


• • 


*J 


r-i 


■H 


.11 MH 


a 


O 


tH 


j-> 


CD 




JJ 


u 


•W 


4) 


CD 


o 


CO 


t. 


o l; t. 




E 


aJ 


c 


O 


rH 


In 


a. 


t, 


-O 


O 


u 


■H 


4J 


■H t> 


L. 




O 


CD 


a) 


Cfl 


CO 




O 


p 


U 


T) 


t. 


Or) 


i-l T) CO 


CD 


t. 


B 


c 


E 


O 


I- 


1-1 


to 


3 


3 


o 


4-> 


3 


Cfl C 3 


F 


4> 


O 





C_ 


--< 





r-l 




Z 


O 


t. 


m 


-o 


4-> -h n 


3 


3 


j-> 


a 


cfl 


■O 


u 


< 






CO 


CU 


3 


c 


cu t- c: 


10 


O 


3 




x; 


0> -r-t 












T> 


M 


2: O M 


C 


a. 


«S 




0. a: 












C 






O 
























M 






O 























IV-50 



This page intentionally left blank 



IV-51 



c- 


OO 


t-- 


on 


o 


o\ 


m 


in 


m 


in 


VO 


in 


CM 


(\j 


cm 


cm 


CM 


CM 









E 3 
















C 






L 25 
















4) 






•H 
















-O 






Cb 
















B 

4) 






.H '-» 


r— 


T— 


ON 


t— 


t— 


o 




O 






.H O 
















4> 






< o 


•=T 


»-~ 


ON 


«— 


vo 


r~ 




a 






o 


on 


o 


CM 


t»- 


t->- 


CM 










■w- 


■=r 


in 


*— 


=r 


ON 


in 




» 












*-" 


•- 


T— 


on 




• 
o 
c 

M 






Li 






















© 
















0) 






>1- 
















<» 






o t. 
















4J 






a> 
















CO 


•» 




-a x> 


CM 


CM 


CM 


CO 


in 


in 




■H 


E 


NXX 




C E 
CO 3 


in 


in 


in 


in 


in 


in 




O 
O 


•»-t 


M 




2 
















0) 


CO 


i 




C 

o 
















0) 


o 


t- 




•H 


c— 


r— 


vo 


CM 


oa 


vo 






cr 




















c 


oT 




r-l O 


VO 


QO 


CO 


ON 


CM 


CM 




o 




•H O 


on 


•=r 


r— 


^T 


^3" 


ON 




■o 


•thI >■ 




E O 


ON 


r— 


in 


CM 


r— 


00 




t- 


•D t 




*» 
















o 


CO 




O w 


r- 


CM 


•=3- 


m 


vO 


en 




C3 


<WtX 




O 












r— 






O-j <U 




T— 
















- 


4-> 


*— * 


4»> 
















>. 


Cl CO 


CO 


















9> 


•H|U 


CO 
















» 


> 


.U 


fl> 


rH 


C 














bO 


3 


x: 


N 


rH 


O 














c 


CO 


tv 


•H 


O 


•Ht- 














•H 




3 


CO 


X5 


rH C_ 














•o 


4> 


O 






r-H <0 














c 


C 


001 >\ 


4-, 


•H XI 


vO 


QO 


t— 


oo 


t>- 


r— 


O 


o 


x> 


O 


E E 


O 


O 


o 


o 


o 


o 


a. 


JS 


co 






3 














CO 


a 


a> 




co 


O 3 














a> 


a> 


bf 


B 


-o 


O 














c 


i-i 


<0 


t. 


c 


r- 
















4> 


E 


■H 


CO 


•*» 














CO 


H 


CO 


Eh 


CO 


^-n 


r— 


in 


o 


CO 


ON 


m 


B 




Ql 


3 


o o 


* 


• 


k 


• 


* 


* 


C 


>» 


t- 


O 


-U o 


CM 


o 


00 


en 


CM 


•=»• 


•H 


L 


<~t 


a> 


x: 


o 


O 


V0 


«— 


in 


•ST 


ON 


«H 


4-> 


CO 


DJ 


*> 


in** 


T— 


r- 


in 


ON 


VO 


on 




CO 


4-> 




^^-' 


• »*-* 










•» 


•« 


<M 


3 


Ot 


■U 




CM 










r— 


«— 


O 


•o 


H 


c 




•W- 
















c 


• 3 


















t- 


M 


1 O 


















<t> 




• B 


















X> 


>. 


vO «£ 




C 














B 


Jj 


CM 




O 














3 


•H 


1 co 




T+- 














C 


i-JJ 


> ttf 




r-\ C 
















•H 


M CO 




.-• 0) 














tl> 


X) 


C 




•H JO 


ON 


0t3 


CO 


00 


0O 


C— 


sz 


CO 


DO 4> 




B E 


ON 


ON 


ON 


ON 


ON 


ON 


4-> 


•H 


J > 




3 
















J 


CQ < 




mz 














» 




«* 




• 














a> 


4-> 


f-i 




CM 














4J 

o 


a 

3 






c o 


CO 


NO 


o 


«— 


=T 


r— 


•H 


o 






CO o 


* 


% 


• 


• 


* 


* 


•o 


c 






x: o 


o 


CM 


o 


o 


m 


CM 


C 


cu 






4-> •*» 














•H 








n*^ 






















0) 














t. 


•• 






0) 














a> 


a> 






(0 














XJ 


o 






J 














B 
3 
2 


c 

3 
O 






t. 


*— 


CM 


m 


^r 


in 


VO 




1 






c0 


r- 


t— 


t>- 


r- 


t-- 


t— 










a> 


ON 


ON 


ON 


ON 


ON 


ON 












>H 



















vO 



IV-52 



Measured as a percentage of total sales, reported pending 
damages sought varied significantly by size category. In 1975 
firms with over $100 million in sales had pending claims equal to 
1.0 percent of sales; medium-size firms had pending claims 
representing 6.0 percent of total sales; and small firms had 
pending claims representing only .3 percent of sales. Pending 
claims for the specified products in the nine product categories 
accounted for approximately 65 percent of total pending claims 
for these firms in 1975 and 52 percent of total new claims in 
1976. 

The trends in total damages sought in new claims for the 
period 1971-76 are less clear than for pending claims. Although 
there is a general trend of increasing amounts per firm during 
the period, there have been significant year-to-year variations 
(see table IV-27). The highest claims per firm were in 197^ for 
medium size firms and in~ 1975 for small firms. Large firms had 
their highest new claims experience during 1976 although they 
also had large claims during 1972 and 1973. 

Table IVt28 presents average annual settlement amounts per 
firm for the period 1971 through 1976. The data indicate that 
the overall average annual amount of settlement per firm show no 
trend since 1972. However, there was a substantial increase in 
average amounts between 1971 and 1972 for medium and large firms. 

Analysis of each of the nine specified product categories 
shown in table IV-29, indicates no clear trends in average 
settlements per firm in the individual product categories, but 
rather large fluctuations from year to year. 

The calculated numbers of claims dropped, settled, or 
adjudicated each year are shown in table IV-30. On the basis of 
these calculated figures, estimates of average cost for claims 



IV-53 






t. 














0> 


t- 


co 


O 


O 


in 


*— 


.0 


m 


vO 


vo 


VO 


vO 


vO 


m e 


CM 


CM 


CM 


CM 


CM 


CM 


E 3 














u z 














tt, 














r-t *-> 


cm 


on 


CO 


ITi 


t— 


O 


.-t O 












• 


<: 


VO 


t— 


CM 


f- 


t— 


«— 





t~- 


s* 


»— 


t— 


CO 


r— 


-w- 


^ > 


ON 


vO 


O 


00 


^ 



4> 

>«- 
O U 

4> 
•O X> 
C E 

cO 3 
2 
C 

o 



.h o 

•H O 
E O 

O w 

o 



in 
m 



o> 
in 



o 

VO 



m 



CM 

00 
on 

r- j^- 



CO 1- 



OO 

in 



CO 



m 



CM 

o 
o 



co 00 o vO 
t— o f- on 

=t co =r =r 



vO 



CM 



CM 



>«-> -«* 



C 

o 



•H .O 
E 6 
3 
O 2 
O 



CO 

o 



VO 

o 



CO 

o 



in 
o 



00 
o 



vO 

o 



■¥*■ 



<"-% 00 



o o 

o 
rn-w- 

CM 



c 
o 



.-I L. 

•H <1> 
E X> 

E 

in 3 
• z 

CM 
■Vt- 

C^ 

CO O 
J5 O 

-t> o 

-tw- 
in — 

0) 

4> 
J 



O «- 
CO CM 



r— 
o> 

CM 



O On «- 

■ k • 

J3- CO CO 

vO J3- f- 

CM OO «— 



ON 
On 



00 
ON 



r- 

ON 



OO 
ON 



ON 
CT> 



«- CM 



t» OO *- 

» • • 

»- CM OO 



OO 

ON 



PO 



CO 



«- CM 

CT> ON 



CO 

r— 

ON 



ON 



in 

ON 



vo 

ON 



bO 

c 

•H 

•o 

C 
O 
O. 

» 

4> 

0) 

E 
fc. 



O 

U 

£> 
E 

3 
C 

4> 

0) 

4> 
±> 

(0 
O 
i-l 

■o 

c 



4> 
JO 

E 
3 
2 



C 

4> 
X> 

a 

4> 
O 

a> 
o. 



to 

o> 

4-> 

CO 
•H 
O 

o 

CO 
0) 



c 
o 
■o 
u 
o 
o 



>» 

4> 

> 

L 

3 
CO 

4) 
C 

o 

xz 

a. 
a> 

r-l 

4> 
t-« 

S» 

c 
J-> 
<n 
3 
■o 
c 

M 
>> 



CO 



4J 

o 

3 
T3 
O 
t. 

(V. 



CD 
O 
£. 

3 
O 
W 



vO 

ON 



IV-54 









t. 
























CD 
























CO X) 


o 


ON 


in 


ON 


OO 


ON 












G E 


oo 


CO 


o> 


ON 


ON 


CO 




C 








J- D 


CM 


CM 


CM 


CM 


CM 


CM 




4> 








•H 3 
















JO 








Cl, 
















E 
4> 








r-l 
















O 








r-l ^ 
















4) 








< o 


»— 


CO 


CM 


•=T 


CM 


OO 




Q 








o 
























o 


CM 


CO 


CO 


CO 


CM 


c— 




•• 








«r> 


r— 


CM 


CM 


CM 


CM 


CM 




• 








w 
















O 
C 
M 








c 
























4> 
















n 








> 
















4) 








O 
















.0 


c 






■o c 

C CD 
















o 


r JL, 






cO X) 


On 


OO 


CM 


■=J- 


-T 


OO 




o 








E 


MD 


t— 


CO 


OO 


CO 


t— 




n 


1 






C 3 
O 2! 
■H 
i-t 
















CO 

c 


7) 






r-l *•% 
















o 


1~> 






•H O 


=T 


O 


CM 


in 


CM 


CM 




"O 


C 






e o 


m 


» 


• 


* 


• 


• 




Li 


3 






o 


in 


on 


vO 


t— 


O 


CM 




o 


o 






O «r> 


zr 


o> 


ON 


ON 


r- 


ON 




o 


E 


vo 

M 


"•» 


















>» 


u 


i 


7) 


















4> 


c 




C 


















> 


CD 


t- 


CO 
















» 


c 


E 


cr 


r-t 


C 














b0 


3 


i> 


r— 


r-l 


o 














a 


CO 


rH 




o 


•H 














■H 




*J 


> 


T> 


r-Hr- 














O 


4) 


4J 


U 




rH t. 














a 


C 


0)1 


o 


<i- 


H <0 














o 


o 


V5 




O) 
to 


e o 

E 
O 3 


CM 


CM 


=t 


in 


St 


r— 


a 

CO 

a> 


a 


CO 


.0 


o 


O 55 














t- 


rH 


3 


u 


c 


r- 
















CO 


C 




■o 


•*♦ 














» 


H 


c 


v\ 


m 


*->* 














e 




< 


.3 


g 


O O 
4-> O 


=T 


PO 


CM 


t- 


r- 


in 


•H 




CD 


CO 


-c 


o 


«— 


IT> 


m 


CM 


NO 


t»- 


<ftH 


*-> 


w 




4J 


in -w- 
















n 


co 


>J 


— 


• s_s 














Cm 


3 


t- 


•O 




CM 














O 


•o 


<v 






«r> 
















c 


> 




















L 


M 


< 




















<D 




1 




















O 


>» 


• 






C 














E 


43 


• 






o 














3 


■H 


OO 






■H 














C 


rH 


<\J 






r-fc- 
















•H 


1 






rH t. 














4> 


£> 


> 






•H fl> 














x: 


CO 


t-H 






E £> 


ON 


o> 


ON 


O 


O 


o 


** 


°H 








E 


o> 


on 


ON 


O 


o 


o 




J 


td 






in 3 








r— 


*— 


r— 


CO 




J 






• 55 














4) 


*> 


OD 






C\J 














♦J 


O 


<: 






■*♦ 














cO 


3 


£-• 






C"". 














o 


O 

o 








cO O 


<T> 


CM 


VO 


r* 


r» 


O 


T3 


tft 








sz o 


• 


• 


ft 


• 


• 


• 


C 


ou 








4J O 


o 


O 


O 


O 


O 


O 


•H 










«¥ 
























n >-* 














c 


• • 








n 














4> 


co 








<o 














O 


CI 








J 














E 
3 
25 


c 

3 

o 

CO • 








c 


r— 


CM 


fN-> 


=r 


in 


VO 




'O 








CO 


I— 


t— 


t— 


t— 


t- 


i— 




t»- 








co 


ON 


O* 


ON 


ON 


ON 


ON 




ON 








x 


^* 














t— 



IV-55 



u 



ja 

B 

3 

vO Z 

c~ 
o 



o a- t— *- 


CTn 


(ommiM 


no 




t\J 



(7* OOflO 



t- 

tvi 



to in moo 

mmoj m 



i- moo f\j 



mi^vot*- 



mvo in o-> 






33 



1 



ml w 



n 

(OIL 
B 



a, 



> E|3 

<< qo 

•I tt,J4J 



c 



J3 

E 

3 

3- Z 



CO 

a) t- 



a 
s 

3 

t» 



C 


JO 

R 

3 

(M Z 



SONO 
=t OO t— I— 



^ CT\ 



m.3- f-<\j 






cu moo\o 
in novo vo 



a- vo irv-3- 



r- in CO r- 

m on mrg 



t- o mm 
ma mr- 



CD O 



a> 

jO 

B 

3 

«- Z 



o t— aim 



<\j m m«— 



«— -=r mm 
oo cr* t— c\j 



r- oo in om •- 



r- r- eg 



i-4 

o 

t. 
a) 
x> 
B 

3 

C 

a> 

.c 



c 
o 

■D 

o 
o 



>» 
© 

> 

3 

w 



c 

o 

-C 



c. 

4-> 
00 

3 

■o 

C 



J3 
CO 







>. 01 






















t. r-l 












01 


1 


0) 


n 




» ' A 












*o 










9) 


C o 












c 
to 


4-> 

CO 


CO 


c. 


O 


x: o) B 


01 




1 




M 


0] c 


a 


o 


o 


3 


U IIH tl 


4J 




S 




r-l 


CU o 




•H 


60 


TJ 


<o bo <i> x: 


O 




O 




CO 


O Q. 


*i 


■o 


CD 


O 


ECHO 


3 


01 


CJ 




o 


■H B 


o 


B 


4J 


L 


•H JC 


"O 


L 






-H 


> O 


3 


■H 





a. 


H*> 3H 


O 


CU 







4J 


CU o 


■o oi 




<_> 




CO CO 


L 


3 


> 


=0 


3 


T3 


O 


C 




.-( 


■H 11 bO-rt 


Q. 


O 


•w 


aJ 


0) 


4-> 


C -r-t 





4J 


ia 


LOBL 




s 


JJ 


C 


O 


rH 4-. 


o. (. 


a 


o 


•H 


4J -^1 -U 


(. 




o 


a> 


CO 


CO CO 


o 


B 


3 


t. 


«IHT3 CO 


1) 


L 


B 


c 


s 


CI (. 


r-l O0 


3 


■o 


4J 


3 .0 C 3 


E 





o 


o 


t- 


■-H O 


i-t 


Z 


o 


01 


T3 .U ~-I TJ 


3 


3 


j-> 


a. 


.0 


■o c 


•< 


r* 


L 


3 


C 4> t. C 


0) 


O 


3 




JC 


4) -H 






a. 


T3 


M s: O M 


c 


a. 


«C 




a, x 








U 




o 


















M 




o 

















t) 

3 

•o 

O 

c 





o 

3 
O 
CO 



IV-56 



-o 




vO 


VO 


f- 




O 






a> 




h- 


vO 


CM 




o 






Q 




CT% 


CVJ 


O 




on 




•» 


Q 




r— 


■» 


•» 




•> 




>» 


O 






T— 


CO 




VO 




4) 


L 








-tO- 




-tO 




> 


Q 
















L 
















3 


E| 


LO 


f- 


on 




O 




oo 


•H 


C— 


CM 


o 




o 






CO 


o> 


CM 


vO 




o 




0> 


H 


r— 


•> 


•» 




« 




c 


O vO| 




CM 


VO 




on 




o 


H 






-W- 




■to 




x: 


Li 


1 














a 


a> 


C\J 














a> 


ol 




■=r 


.=r 


CM 




o 




rH 




c^- 


ov 


O 




o 




CD 


X3 


t- 


cn 


o> 


m 




on 


* 


E~> 


•H 






•» 


•> 




•» 


CO 




co 






*- 


CO 




=T 


43 


>» 


CL, 


•• 






■te- 




■&}■ 


c0 


Li 


L 












TJ 


43 


CO 


CO 














co 


a> 


0) 


on 


-=r 


•=y 




O 


Q-. 


3 » 


far 


>-i 


t*- 


■=r 


o 




o 


O 


•O VO 


cti 




CTi 


f- 


m 




CO 




a t— 


e 


>i 


«- 


•> 


•> 




•k 


CO 


M ON 


03 


XI 




«— 


CO 




=r 


x: 


r— 


Q 








-te- 




-to 


43 




T5 












C 


>» l, 


d_| 0) 












o 


43 a> 


Ol-U 


CM 


■=r 


rn 




o 


B 


•H X) 


CO 


t>- 


ir» 


on 




o 




rH B 


43 


o 


0> 


vO 


m 




t- 


o> 


•H <D 


C 


•H 


*-• 




•a 




•» 




X> O 


3 


■o 






CO 




CM 


43 


co a> 


O 


3 










T— 


3 


•H Q 


E 


■"- 






-to- 




-tO 


O 


j 


< 


•o 






I 






x> 


M 


< 




GO 


4> 






c0 


» 


2d kj 

cOl O 




C 


fH 








43 O 




O 


43 






CO 


O C 




•H 


+> 






43 


3 M 


L 




43 


CD 


l, 




c 


TJ 


<U - 




•H 


CO 


a> 




a> 


O CO 


> TJ 




CO 




a 




CO 


L. 4) 


<| 0) 




O 


<4H 






4> 


Oi 43 


1 iH 




Q. 


C-n 


43 




l, 


CO 


1 43 




CO 


o 


00 


a 


a 


•H 


• 43 




•H 


43 o 


o 


o 


4> 


O 


o a> 




•D 


CO 


O -H 


L. 


.. O 


OO CO 






3-te- 




43 




a> co 


i 




<i-. 


Ow 


"O -H 


vO 


a co 


> 




O 


E 


a> 


CO 


t*- 


c < 


M 






CO CO 


43 


o 


o\ 


3 






L, 


4-> 


CO 


a, 


T— 


o c 


U 




a> 


r-t c 


E 


GO 


T— 


CO o 


J 




X> 


co a> 


•H 


•H 




TJ 


CQ 




E 


43 E 


43 


TJ 




L> 


< 




3 


o 


CO 






O 


E-» 






25 


H 


W 






O 



IV-57 



dropped, settled, or adjudicated were computed. Th.e table gives 
no indication that the average cost per disposition of a claim 
has changed significantly during the period 1972-76. However, it 
is unknown what the composition of the dispositions, was each year 
with respect to the proportion of claims drooped, settled, or 
adjudicated . 

What were product safety programs and remedial actions 
undertaken by responding firms? 

Table IV-31 displays responses concerning several aspects of 
current product safety programs. The most significant impacts 
were judged by the respondents to be in the areas of product 
manufacturing .and quality control, product design and 
engineering, and provision of instructions and/or warnings, in 
that order. The other aspects of product safety programs were 
generally considered to have little or no impact by the firms in 
the sample. Cenerally, the responses were consistent by sales 
strata. However, for the program categories "product design and 
engineering" and "product manufacturing and quality control" the 
percentage of firms reporting "not applicable" was inversely 
related to the size of firm. 

Percent of Firms Reporting "Not Applicable" for Two 
Product Safety Programs, by Size Category 

Product design & Product Manufacturing 
Size of Firms Engineering Quality Control 

Less than $2.5 million 49.5$ 40.8$ 

$2.5 to $100 million 24.4 15.1 

$100 million and over 12.2 8.7 



Source: Product Liability Industry Telephone Survey, 
Gordon Associates, Inc., December 1976. 

IV-58 



c 

<u 

<u c 

n f~ 
c v 

O D. 

2 10 
d> 4- 

oc o 
m 
i- a 

a> t. 

.O -H 

Bt*. 

2 

43 

a 

a> 

43 O 

c L 
at 43 <J> 
o o eu 

4_ a 

•H B 4-. 

t: m o 

bO <n 



CO 



J3 -W 
E U. 
3 

2 



C 

a> 
o 

L, 

a> o a, 
B at 

O Q.4-1 

A B O 
M 

l. 
o 



m 

B 

L. 

3 
2 



O 



OO 
vO 



o 
eg 



ON 

vo 



o 






«— 


in 


O 


tr> 


t— 


b 


e 


• 


• 


k 


co 


CO 


m 


on 


OO 


<M 


CM 






t— 



no 
C— 



vo 
On 



eg 



OO 
CM 



O 

OO 



CM 






CO 
vO 



r- m 



CO 



in 

CM 



vO 

oo 



in 



r- 
in 



CO 

in 



vo 

r- 
on 



© 
Xt 

s 

a> 
o 
a> 
a 



m 
<o 
j-> 
at 

•H 

o 
o 

9) 
» 

a 
o 
•o 
c 
o 
o 



4) 
O 

O O 4> 

a) a, 
a> a. 

^H B 
4JHtc 
4J O 

•H O 
-J 2 t- 



jo-h 
ect. 

3 
2 

*> 

C 
4) 

a> o 

.-i t, 

x> a> 

(0 a. 
43 o 
O -H 
2 r-l 4h 

a O 
a m 

<C L. E 

a> l 

JO-H 
BCb 
3 

2 



in 

CJn 



CM 
CO 



in 


VO 


t- 


r- 


■ 


* 


• 


• 


o 


zf 


o 


CO 


CM 


eg 


»-" 


CM 



cg 



on 
vo 



CO 
CO 



vo 

CO 



ao 
t— 



o> t- 



Cg 






O 

eg 



o 



co 



vO 



o 



CO 

CO 



vO 

eg 



co 
co 



■a- 

CO 



>» 

> 
L. 

3 
CO 

a> 
c 
o 

JC 

a 

a> 

r-l 
4> 
H 

>> 
t, 

» 

3 

c 



>» 

43 



XI 

at 







c o 


x> 


1 

3 














•H t. 


c 


XI 




C- 






43 


■o 


L, 43 


at 


•H 




o 




C 


>, c 


c 


3 C 




L. 




*v 




O 


.>-> a> 


at 


43 O 


c 


43 




T3 




■H 


a> b 




O O 


bO 


n 




c 




T3 43 


<■_ a> 


c 


at 


t-« 


■H 




at 




c at 


0! i-H 


bO bO 


<M >» 


n be 


■o 








at a 


CO w 


•W C 


3 43 


(U c 






in 




3 




n «-( 


C,-t 


•o ^t 


•o 




c 




bO-O 


-u B 


0) t- 


01 r-t 


t, 


c 




o 


n 


c as 


o at 


•o a> 


B at 


l a> 


at 




■H 


bO 


T-t 


3 l. 


V 


3 


a> a> 






4J 


C 


n o 


T> bO 


4> c 


4-J cr 


c c 


o 




O-H 


T-l ^4 


O O 


O tH 


O 


•H ^ 


b0 


c 


3 


c 


43 f-H 


L. S. 


3 bO 


3 -O 


at bo 


at 


o 


t. 


L, 


L, X) 


OU 0- 


•o C 


•o C 


■u c 


u 


T-t 


43 


X 


4) 3 




O 0) 


o at 


c a> 


O 4-> 


m 


3 


> O. 




s. 


Li 


o 


4J 




c 




T3 




a, 


a, 


o 


CO 




M 




«* 



43 
O 

3 

•o 

O 
L. 

a. 



o 

L. 

3 
O 
CO 



IV- 5 9 



Manufacturers were asked whether their f^rms had been 
inspected by their insurance carriers loss prevention engineers 
within the past two years. The frequency of inspections was to 
some extent dependent on the size of firms as indicated below. 

Inspections by Insurance Carriers During the Past Two Years, 

by Size Category 

Number of Firms Percent of Firms 
Size of Firms Inspected with Insurance 

Less than $2.5 million 39 54 

$2.5 to $100 million 75 72 

$100 million and over 81 74 



Source: Product Liability Industry Telephone Survey, Gordon 
Associates, Inc., December 1976. 

Of the total firms which were inspected during the past two 
years, only 82, or somewhat less than half, reported that 
specific recommendations for reducing claims were received from 
their insurance carriers. Recommendations with the greatest 
perceived impact concerned augmentation of improved quality 
control procedures (41 percent) and improved labeling (21 
percent) . 

One hundred twenty-five firms, approximately 37 percent of 
the respondents in the survey, indicated that their firms had 
special liability prevention programs directed at reducing 
product liability claims. As shown in table IW32, larger firms 
were involved in these programs to a greater extent than smaller 
firms. However, in all size categories approximately 30 percent 
of these programs were initiated after 1974. 



IV-60 







*> 






























c 






























4> 






r— 








On^- 




t»- 


r» 








9) O 






• 








• 


• ■» • 




• 


• 








a t. 






e'- 








rorONO ao 




o 


NO 








C 4> 






en 










r— r— 




•— 


CM 








t* a. 
























•O <0 






Cx, 
























c c 

cfl O 






r-l V. 
























J3 






r-I O 
























t. a 






«* 


CO 






















co a> 






(. 


B 




in 


NO 00 






coin «— m 




vO 


NO 


0) rH 






a> 


t- 




CM 


COCO 






»— 


3" CM NO 




m 


CO 


>, 4) 






X> i-l 




r— 


















4-> 






R Cx. 






















u 


• 




3 
























CO 


NO 




Z 
























^-i a> 


t— 




C 
























3 JC 


ON 




« 
























O 4J 


T-» 




> 
























1-1 






o 
























4-> 


M 




** 
























c c 


4> 




•o c 
























CO iH 


X> 




C 4> 






on 








cm in < 




00 


in 


a 


B 




CO O 






• 








• 


• * • 




• 


V 


00 


4) 




C 






*— 








in on m t~- 




^T 


CO 


cfl C 


a 




c a> 






in 










CVJ t- C\J 




i — 


CO 


O 


4) 




o a. 
























C iH 


Q 




■H 
























■H 4-> 






i-« 
























n 


» 




fH 
























T3 © 


• 




■H«w 
























4> 3 


o 




H O 
























4J O 


c 






m 




o> 


o- m 






no t~ 




t— 


CM 


c 


l-H 




O 1. 


E 




in 


«- =r 








CM «- CO 




t— 


•=r 


co a> 






o a> 


L 






















4-> 4J 


0) 


bt 




.- X>.H 






















n ca 


4) 


C 


X 


«» B Cx, 






















c 


■U 


i-r 


l 


3 
























CO cfl 


CO 


o 


o 


Z 
























B Q. 


•H 


3 


bC 


























cfl a> 


O 


■o 


a> 


c 
























L 01 


O 


a> 


4J 


o 
























faO 


0) 


« 


(0 


1-» 
























O 4) 


0) 


o 


l-» 4-> 
























L t. 


< 


ol 4> 


•-I c 
























O. 4> 




i-( 4> 






t— 








o 


On CM NO 




OO 


NO 


» 


C 


M n 


8 O 






k 








■ 


• • b 




• 


• 


Cm 


o 


•r4 


M 






CO 








in o 




r— 


CO 


O 4) 


•a 


colco 


O 4> 






m 










r— r— 




r- 


CM 


n 


M 


E 




o a, 
























t- 4> 


o 


a) 


« 


•- 
























4> J= 


o 


c 


*> 
























n *i 




tx 




Cm 
























B 


« 


o 




o o 
























3 4) 


>. 


t- 


n 


4J 


oo 






















C "J 


4> 


a. 


E 


d 


e 




nO 


m o 






^o c 




^r 


=f 


3 


> 


tH 


in a) 


l 




^r 


»- m 








r- CM 




t— 


ro 


T3 CO 


M 


•H 


co 


. r> 


t-i 






















4) O 


3 


CO 


.-1 


cm S Cx. 






















4-> 4> 


CO 


•H 


u 


«» 3 
























t- x» 




o 


>- 


Z 
























o 

Q. 9) 
<D B 


4) 
C 

o 


CO 


•H 


c 
























<~ cfl 


X! 


1 —1 


o 
























C 


a 


1 -H 


1-1 
























4> bO 


4> 


• .O 


.H 4J 
























x: o 


t-l 


<M CO 


^ c 
























4-> C 


4> 


onn 


1-» 4> 






=T 








o 


dOS 




ON 


t— 


a 


H 


1 J 


B O 






• 








» 


• • • 




• 


• 


c 




t> 


fc. 






ON 








*— 


3-ocn 




3- 


r- 


4) «H 


>. 


H JJ 


in 4> 






«™ 
















r— 


4) Cfl 


U 


CJ 


> a, 
























» -H 


** 


Cx] 3 


CM 
























4-> O 


co 


J T3 


4» 
























4> 4> 


3 


CO O 


























j3 a 


•o 


«< L 


c *m 
























a 


c 


h a. 


CO O 


























M 




x: 


co 




o 


no in 






r- 


in o o 




in 


CJ 


■H bO 






x> C 


B 




CVJ 


r— 








r— 






r— 


in c 


>. 




<U 


u 






















i-t-H 


*3 




n x> -h 






















X W 


•H 




n BOt, 






















4> £-. 


»-l 




<U 3 
























o 


•H 




J z 




CO 

B 

cfl 








1 

o 




bO 


o 

CO 




i-l 


a 

CO 4> 
4> C 
O 
C 0} 

4> E 


X) 

j 
o 








t. 




•— 


c 


L 




•H<hHIh 




rH 


4) i-t 


3 








M 




(. 


4) 


a 




00 O 4) 


3 




CO 


Cm Cm 


•o 








O 




4>«- 


.* 






a> t- £) 


C 




3 


Cm 


o 








t- 




4J -3- 


CO 


a> 




T3 *J cfl 


CO 




a- 


i-t Cm 


t, 






<i> 


a 




cO t- 


Jj 


3 




a> a> .-i 


E 






•o O 


a, 






CO 






i-l On 


t- 


C 




t~ c 






■o 










c 


ft 




T— 


<u 


•H 




•o 


T3 


tc 


4>rH 


M 








o 


cfl 




t- 


T3 


JJ 


CO 


J_> J-) <U 


a> 


c 


4-> O 


j-> 4> 


•• 






a. 


i-t 


• • 


o a> 


c 


C 


jJ 


o o > 


■H 


•H 


C.U 


JC X) 


4> 






CO 


O TJ 


t. 


3 


o 


O 


3 3 O <-< 


t- 


(1> c 


bO B 


O 






a> 


4) 


CD 


a- o 




o 


3 


■D-D L 


■^1 


3 


E O 


•H 3 


u 






arc 


<x±> 


f- Cm 


M 


0} 


■a 


O O Q.T3JJ 


WO 


rH C • 


3 








n 


L 


On 4) 


C 


•H 




CLE 


O 




3 


00 >» 


O 










CO 


I— CQ 


O 


Q 




a, a. m 3: 




< 


«— rH 4> 


CO 








£*J 




i-« 














cfl > 










+> 


Of) 




4J 














•p t. 










■H 






o 














O 3 












A 






< 














4J CO 





IV-61 



Actions undertaken to reduce product liability claims were 
directed primarily toward improved labeling, augmented quality 
control, and product redesign. There were no significant 
differences by size categories with the exception of more 
emphasis on product redesign for firms with over $100 million 
total sales. 

Approximately 18 percent of respondents indicated that 
special programs to reduce claims for the nine specified product 
categories had been considered during the past year. The number 
and percentage of firms considering such a program by size 
category, are shown in table IW33. Generally, about two*-thirds 
of the firms considering such programs emphasized augmenting 
quality control procedures. Approximately 45 percent emphasized 
product redesign. 

TRADE ASSOCIATION SURVEYS 

Introduction 

Twenty trade associations or other interested organizations 
submitted materials resulting from internal studies of the 
product liability situations in the industries which they 
represent. The questionnaires on which these materials are based 
were designed to address items of particular interest to each of 
the associations. They did, however, have some common elements 
which also made them useful in designing the telephone survey. 

Data from these studies are not directly comparable. They 
differ in time frame, methods of calculation, analytical approach 
and rigor. Return rates were low in the majority of studies, 
generally ranging from 15 to 35 percent. With a practice of 
voluntary response, returns were often incomplete as well. Trade 
association survey responses were furnished to the Product 



IV-62 







-H 










c 










4> 




St 






CO o 




• 






B «- 




OO 






£. 4) 




r- 






•H CL. 










Cb 










r-t %H 










r-l o 










«< 


95 








t. 


B 


CM 






0) 


L 


vO 






jQ -H 








E&u 








3 










■z 










u 










<Q 










> 










O 










4J 










T3 C 










C 9i 




vO 






CO O 




• 






t- 




CO 






c a> 




CM 






o a. 










T-t 










r-f 










r-t 










•H *-• 










B O 


C0 


\C 






O t- 


B 


CM 


ce 




o a> 


L 








«- J3 fj 




5 




■«r» 6 &■■« 

3 








2 






Tj 










<U 




C 






C 




o 






0) 




■H 






T3 




r-t 4-> 






■H 




r-1 C 






CO 


X 


•h a> 




in 


c 


L, 


E o 




« 


o 


O 


u 




on 


(0 


bd 
CO 


o a> 
o a. 

«r> 




CM 


c 




o o 








4> 


4-> 


95 




o 


N 


L 


B 


OC 


£- 


•H 


in a> 


t. 


cm 


IX 


CO 


. X> 


•H 








cm e ou 




4* 


» 


<r> 3 






XX 


= 






2 


CO 
E 
ft 
rd 
r-t 
O 


c 
o 

r-t 4J 

r-t C 
•r-t » 






CO 

1 
1 




e 2 

in <u 




OO 






. a. 






pr 




CM 






m 




«» 






> 




C Wc 






M 




«S o 










x: 


95 


co 


U? 




4J t- 


5 




i 




<o 


U 




cc 




95 XJ 


T-i 




< 




91 E Ct. 




H 




CD 3 
J 2 







o> o 

ooao 



<7>m 

r- vO 



O 



mN vo o<\J 

t- CM «- .=T CM 



«— if 
vO O 



CM OvO 

in roo> 



CM 

eg 



h- CM vO 



^ CM 

• *> 



vO 



if 



^r «~ 00 «-oo 
t- CM 



C^ OV C*- CTn OS 

be » • • 

t— oo «— oocm 



CM 



o 

4> 4 

95 O. 

C CO 

C 

O T3 93 

95 4> B 

4> C tf 

d) t 
•O HO 
•H O 

95 t. 

c a. 

o 

o 



vc 



4- 

a> 

T3 

•w 

9J 

c 
o 
o 

9J 
C 
O 
f-» 
.U 

o 



95 bt 

J-> C 

O -H 
3 t. 

•C C 3 

O bC.U 
C -H O 

Q, 93 CO 

4» vW 

4> *D 3 

3 <U C 



>> 



CO 
3 
«U & 
i. 
t- CO 3 T>r-I 
E TJ CO O 
4J 4J 41 •*-> t, 

C O >> O C4J 
O 3 V-. O <Q C t- 
O T3 -H I. B O 4> 
95 OT3 atoox 
■H t. O 3 4-> 

o a. s: < o 



i 

w 

3 
CO 

O 

95 
C 
c« 



4> c 
L, 41 
C B 
3 
O 



o> 



c 

4> 

JO' 
B 

a v 
o 

4!' 

a 



n 



c 
o 

O 



>v 
4> 
> 
L. 

3 
CO 

fl> 

c > 

o u 
x: to 

Q E 
CD 6 

r-f 3 

4> CO 

H • 

I 

>. * 

4J CO 
0) I 
3 > 

•O H 
C 

M td 

J 

>,« 

JJ < 

•H H 



X) 



4J 

o 

•o 
o 
u 
a. 



o 

t- 

3 
O 
CO 



IV- 6 3 



Liability Industry Study in a variety of formats. •Table IV-3 1 * is 
a summary of the materials which were made available for 
analysis . 

These studies have been arrayed roughly in declining order of 
their utility for detailed analysis of the data by the Product 
Liability Industry Study. At the top are seven studies for which 
data in raw form were available and could be manipulated in 
search of insights, explanation and interpretations relevant to 
their own analysis and analysis of other studies. In the middle 
are studies for which data were displayed in aggregate form in 
relatively high statistical detail. At the bottom are studies 
which report general findings in lesser statistical detail. 

Survey Results 

What are the characteristics of responding firms? 

In order to gain insight concerning the data relationships, 
the studies have been charted to show whose opinion is reflected 
in terms of product category and size of firm (see table IW35). 

While the distribution of responding firms by size is quite 
uneven among the various trade association surveys, when all of 
the surveys are considered there is a substantial representation 
of all size categories. 

Collectively, the trade association surveys provide some 
coverage of most of the product categories designated for study 
by the Task Force. However, the twenty^seven product 
category/size cells of the telephone survey are by no means 
equally covered in the trade association data accumulation, and 
analysis within that framework is not attempted. 



IV-64 



TABLE IV-34. — Su mmary o_f T rade Association Surveys ; 



Trade Association 

Risk & Insurance Mgmt. Society 2 

Cast Metals Federation 

Industrial Heating Equip. Assc. 

American Die Casting Institute 

Water & Wastewater Equip. Mfrs. 
Assoc. 

Woodworking Machinery Distrib. 
Assoc. 

Railway Progress Institute 

Society of the Plastics Industry 

Woodworking Machinery Mfrs. of 
America 

Machinery & Allied Prods. 
Institute 

American Textile Mfrs. Institute 

Automotive Parts and Accessories 
Assoc. 

Recreation Vehicle Industry 
Assoc* 

Nat'l Machine Tool Builders 
Assoc. 

American Textile Machinery 
Assoc. 

Calif. Grain & Feed Assoc. 

Health Industry Mfrs. Assoc. 

General Aviation Mfrs. Assoc. 

Grinding Wheel Institute 



Number of 
Completed 
Responses 

367 
250 

53 

52 

41 

32 

13 
366 

46 

210 

148 

110 

67 

60 

46 
40 
48 
35 



Data Presentation Method 
magnetic tape records 
individual records 
individual records 
individual records 

individual records 

data array 
individual records 
statistical tables 

summary statistics and text 

summary statistics and text 
summary statistics and text 

summary statistics and text 

summary statistics, tables 

summary statistics 

summary statistics 

summary statistics, text, quotations 

summary text 

summary text 

summary text 



'The collection of responses presented to the U.S. Senate Select Committee on 
Small Business and the Department of Commerce by RETORT, an advocacy organization, 
have also been reviewed. Although the responses present information on individual 
firms' experiences with product liability insurance problems, they could not be 
quantitatively analyzed within the same set of criteria used for the trade 
association data. 

*The Risk and Insurance Management Society is not a trade association in the same 
sense as the others, but has provided comparable data and has a membership base 
similar to the others. 

Source: Respective Trade Association Surveys--data compiled by Gordon 
Associates, Inc., December 1976. 



IV-65 



TABLE IV-35.--Fi.noi £hiCs£ttnl2LL£a 2t tbfi ICdlfl 

Aaaaaiaiiaa Suctcx R espondents 



Product Category 



Large 

(Over $100 mil.) 

Annual Sales 



High Medium 
($50-$100 mil.) 
Annual Sales 



Low Medium % 
($5-$50 mil.) 
Annual Sales 



Small 
(Under $5 mil.) 
Annual Sales 



Automotive Parts and 
Accessories Assoc. 

Recreation Vehicle 
Industry Assoc. 

Aircraft C omponents; 
General Aviation Mfrs. 
Assoc. 

Industrial Machinery : 
Woodworking Machinery 
Distributors Assoc. 

Woodworking Machinery 
Manufacturers of 
America 

American Textile 
Machinery Assoc. 

Industrial Heating 
Equipment Assoc. 

Railway Progress 
Institute 

National Machine Tool 
Builders Assoc. 

Me tal, Casti ngs: 

American Die Casting 
Institute 

Members 

Affiliates 

Survey-Overall 

Cast Metals Federation 
Grinding Wheels 



6(17*) 



3(37* ) 



3(61) 
9(3*) 



Health Industry Mfrs. 
Assoc. 

fit it er Pcp.duct,3= 

American Textile Mfrs. 

Inst. 

California Grain and 

Peed Assoc. 

Water and Wastewater 

Equipment Mfrs. Assoc. 

Diversified Surveys : 
Machinery and Allied 
Products Institute 

Risk Insurance Mgmt. 
Society 

Retort 



29(201) 



103(19*) 
263(82*) 



size distribution not available 
size distribution not available 

21(60*) 

size distribution not available 



1(3*) 
1(2*) 
6(2*) 



16(36*) 

17(33*) 
106(13*) 



Grinding Wheel Inst. 




size distri 


Industrial Chemicals: 






Society of the Plas- 






tics Industry 






Processors 
Material Suppliers 
Other (tool, mold- 


5(3*) 
16(30*) 


3(1*) 
5(9*) 


ing machines) 
Survey-Overall 


2(2%) 
23(6$) 


Z{2%) 
10(3*) 


Medical Devices: 







56(28$) 
11(21$) 

25(22$) 
92(25*) 



size distribution not available 



18(12*) 



87(59*) 
12(60*) 
16(39*) 



8(23*) 





K3*) 


7(21*) 


26(76$) 




3(7*) 


12(26*) 


31(67$) 


1(2*) 


2(1$) 


19(36*) 


31(58$) 


6(16*) 


1(31*) 


3(23*) 


- 


8(13*) 




23(38*) 


29(18*) 



27(61*) 
1(50$) 
31(60$) 

123(51$) 



135(68$) 
21(10$) 

8 3(7 3*) 
239(65$) 



11(9$) 
8(10$) 
25(61*) 



29(11*) 



27(8*) 



78(37*) 



32(10*) 



size distribution not available 



Note: Percentages may not add to 100 because of rounding 

Souroe: Respective Trade Association Surveys--data compiled by Gordon Associates, 
Inc. , December 1976. 



IV-66 



What is the extent of product liability coverage 
among firms responding to trade association surveys? 

A basic question in the surveys was whether the firm had 
product liability insurance. If the answer was no, provision was 
made to specify why not. A positive response was followed by an 
opportunity to describe the coverage more specifically and/or 
discuss changes over a recent time period. The Risk: Insurance 
Management Society study assumed coverage and proceeded directly 
to discussion of types and costs. 

Table IV-36 displays the reasons given by firms for not 
carrying product liability insurance. The studies are arranged 
in order of increasing size characteristics of the firms in the 
sample. This permits identification of general relationships 
between size of firm and noninsurance trends.. The clear 
indication of Table IW36 is that lack of nroduct liability 
insurance is characteristic of small firms. 

Where large - firms are not covered, the reason is. self- 
insurance. For small firms the reason is most commonly that the 
firm does not think it is needed, followed by self-* insurance or 
risk assumption and "too expensive". Cancellation and 
unavailability of insurance are mentioned less often. 

The findings in the trade association surveys, that small 
firms are more likely to go without insurance than large firms, 
are consistent with the results of the telephone survey. The 
results of the telephone survey show that 29 percent of the small 
firms did not have product liability insurance, compared to 18 
percent of the medium^size firms and 3 percent of the large 
firms. Reasons most frequently given in the telephone survey for 
not carrying insurance were that it was too expensive or not 
needed. The reasons given most frequently in the trade 



IV-67 



TABLE IV- 3 6. --T£ad e AaaaalaHan Surveys: Nu-pber. 2 £ 
EJC3U8 nat ItUUHil M R easons lar &o_£. C arrying £L Insur^ce 



Trade Associations 
and Predominant self- Too 

Size of Firms Reporting Insured 1 Expen. 

Small 

Health Industry 

Manufacturers Assoc. 3 3 

Water & Wastewater 
Equipment Mfrs. 



Don't 
Need 



Can't 
Get 



Woodworking Machinery 
Manufacturers of 
America 

American Textile 
Machinery Assoc. 

Industrial Heating 
Equipment Assoc. 

Medium Small 

California Grain 4 
Feed Association 

American Textile 
Mfrs. Inst. 

L&ESfi. 

Machinery & Allied 
Products Institute 

Railway Progress 
Institute 

Risk Insurance 
Management Society 



21 



Cancelled 



Assoc. 


3 


1 


1 


- 


- 


American Die-Casting 












Institute 


1 


2 


4 


2" 


1 


Cast Metals 












Federation 


3 


11 


16 


3 


3 


Society of the Plas- 












tics Industry 


9 


9 


12 


3 


3 



Number 
Reason of Firms Percent of 



Not 
Given 



Not 
Insured 



10 



3 
27 

8 





Assoc. 
Sample 



21 



7 


17 


10 


19 


36 


18 


41 


11 


3 


7 


2 


4 


4 


8 



8 
18 

4 





Unknown Sjze 

Automotive Parts & 
Accessories Assoc. 

Recreation Vehicle 
Industry Assoc. 



Totals 



3 
3* 



32 



56 



22 



17 



72 
3 



16 



9 

3 

163 



^Includes 4 firms with very high deductible levels - exceeding loss expectation 

2 Flgure from text; not statistically supported 

^Mentioned but no figures provided 

New firms having trouble finding coverage 

Source: Respective Trade Association Surveys--data compiled by Gordon Associates, Inc., 
December 1976 



IV-68 



association surveys included these same two reasons,, but also 
included self-insurance as a primary reason for not carrying 
insurance. In the telphone survey, self^insurance was only 
mentioned twice as the reason for not carrying insurance. 

Attention is directed to the third, fourth, and fifth surveys 
listed in table IVV36, having non-insurance percentages between 
11 and 19 percent. These industries fall Into the anonymous 
exposure grouping, as discussed in the analysis of the selected 
firm interviews. Almost all of the "don't need" responses, with 
the exception of those given by textile manufacturers, were given 
by firms in this group. 

Limits of liability have not changed appreciably in the 1971 
to 1976 period for either primary or umbrella coverage. The 
available trade association data on limits of coverage are 
displayed in Table IV-37. 

Trade association survey data are in general agreement with 
telephone survey results, i.e., higher limits of liability the 
larger the gross sales of the firm, with significant differences 
among product categories. 

How have deductible limits and retention levels 
changed over the past six years? 

The number of firms with deductibles has increased in all 
industries represented and for all sizes of firms over the six- 
year period as illustrated in table IV-38 



3 
See glossary in introduction to chapter IV for definition of 

"anonymous exposure" as used here. Discussion of the term and 

implications are in this group. 



IV-69 



TABLE IV-37. -- Trade Association Surveys ; Median o.r 
Average L imits q£ Liability per F irm Responding 1971 and 1976 

Trade Associations 
and Predominant Primary Coverage Umbrella Coverage 

Size of Firms Responding 1971 1976 1971 1976 

Small 

Woodworking Machinery 

Distributors $300,000 $300,000 $1,000,000 $1,000,000 

Society of Plastics 

Industry $300,000 $300,000 $2,000,000 $2,000,000 

Industrial Heating 

Equipment $500,000 $500,000 $5,000,000 $5,000,000 

W^t^r* fi n ri Ht* s fcw3. fc g I* 

Equipment Manufacturers $500,000 $600,000 $22,200,000 $28,500,000 

Cast Metals Federation $344,000 $495,000 $1,979,000 $3,060,000 

Small - Medium 

National Machine Tool 

Builders Association $600,000! $560, 000 1 N/A N/A 

American Textile Mfrs. 

Institute $350,000 $500,000 N/A $3,750,000 

Large 

Railway Progress , . , 1 

Institute $640,000' $725, 000 1 $24,700,000' $34,100,000' 



Adusted averages rather than medians 

Source: Respective Trade Association Survey--data compiled by Gordon 
Associates, Inc., December 1976. 



IV-70 



TABLE IV-38. — Trade Association Surveys : Number 
of Firms with Deductibles 



1971 1976 



Sonipty of the Plastics Industry (small) 
Woodworking Machinery Manufacturers (small) 
woodworking Machinery Distributors Assoc, (small) 
Industrial Heating Equipment Association (small) 
Water & Wastewater Equipment Manufacturers (small) 
Cast Metals Federation (small) 
Railway Progress Institute (large) 



20 


55 


2 


5 


1 


7 


1 


8 


9 


13 


15 


27 


5 


7 



Source: Respective Trade Association Surveys«r-rdata compiled 
by Gordon Associates, Inc., December 1976. 

Table IV-39 displays median deductible amounts reported in 
trade association surveys unless otherwise indicated. The trend 
has been generally upward, as in the telephone survey. However, 
two of the trade association surveys which are small-firm 
dominated remained unchanged and one, in the plastics industry, 
revealed a modest decrease in the median deductible amount. 

TABLE IV-39. -- Trade Association Surveys : Changes in 
Median or Average Deductible Limits 



Society of the Plastics 

Industry (small) 
Woodworking Machinery Distributers 

Association (small) 
Industrial Heating Equipment 

Association (small) 
Woodworking Machinery 

Manufacturers (small) 
Cast Metals Federation (small) 
Water & Wastewater Equipment 

Manufacturers (small) 
Railway Progress Institute (large) 
Risk and Insurance Management 

Society (large) 10.2* 41.7* 309 



1971 
($000) 


1976 
($000) 


Percent 
Change 


7.5 


5.0 


-33 


1 .0 


1 .0 





10.0 


10.0 





0.7* 
3.0* 


2.0* 
6 .6 * 


186 
120 


8.7 
47.0* 


1 00 . 
118.0* 


1,049 
151 



*Based on average rather than median. 

Source: Respective Trade Association Surveys*--data compiled 
by Gordon Associates, Inc., December 1976. 



IV-71 



Other small-firm dominated surveys reported deductible 
increases as follows: The Health Industry Manufacturers 
Association report mentioned that 11 firms (24 percent of the 
sample) had reported increases in deductibles as a major problem; 
the American Textile Manufacturers Institute survey showed a 50 
percent increase in the median deductible between 1971 and 1975, 
although the retention was generally low in this group; the 
National Machine Tool Builders Association reported an increase 
of average deductibles from $27,000 to $41,000 in the one year 
between 1975 and 1976. In large-firm surveys, major increases 
are also mentioned: One of the largest general aviation 
manufacturing firms reported going from first dollar coverage to 
a $4 million deductible in two years (1972-1974). In the 
Machinery and Allied Products Institute study, 77 firms {36 
percent of the sample) reported that their carriers required 
deductibles and/or retrospective retention. The median 
deductible in this group was $175,000 and the median 
retrospective retention limit was $1,000,000. 

These trends in numbers of firms using deductibles and 
amounts of deductibles, are similar to those found in both the 
telephone survey and selected firm discussions. 

What are the trends in cost of product liability 
insurance coverage? 

In Table IV-40, data from the trade association surveys which 
reflected premium cost changes in various formats have been 
converted to average annual percentage increases. 

In the 1970-1974 period, only a few of the surveys reflected 
average annual percentage increases for primary coverage above 
what could be attributed to growth in exposure and inflation. In 
the 1974-r76 period, however, six of the sixteen surveys showed 



IV-72 



TABLE IV-40. — Trade Association S urveys : A verage A nnual 
Percentage Increases ill Primary I nsurance Costs ,' 

Trade Associations Primary Coverage 

and Predominant 1970-71 1974-76 

Size of Firms Responding $/years J/years 

Snail 

Woodworking Machinery Mfrs. 

Assoc. 16 2 /(71-71|) 135 2 /(74-76) 

American Die Casting Inst. 17/(71-74) 23/(74-75) 

Water & Wastewater Equip. 

Mfrs. 18/(70-74) 169/(74-75) 

Society of the Plastics 

Industry 0/(71-74) 65/(74-76) 

Woodworking Machinery 



Distrbs. Assoc. 






322/(71.76) 


American Textile Mach. 
Assoc. 


NA 




225/(74-76) 


Health Industry Mfrs. Assoc. 


NA 




213/(75-76) 


Industrial Heating Equip. 
Assoc. 


10/(71- 


■74) 


54/(74-75) 


Cast Metals Federation 


2/(71- 


-74) 


60/(74-76) 



Small to Medium 

Nat'l Machine Tool Bldrs. 

Assoc. 12/(70-75) 89/(75-76) 

General Aviation Mfrs. 

Assoc. 55/(69-73) NA 

American Textile Mfrs. Inst. 20/(71-75) 100/(75-76) 
Large 

Railway Progress Inst. 11/(70-74) 22/(74-75) 

Unknown Size 

Automotive Parts 4 Acces- 
sories Assoc. 45/(71-75) 200/(75-76) 

Recreational Vehicle 

Industry Assoc. 0/(71-74) 38/(74-76) 



Grinding Wheel Inst. 13/(70-75) NA 

NA = Not Available. 



'These figures represent average annual rates of 
increase in cost per thousand dollars of sales unless 
otherwise indicated. 

Based on average total premiums per firm. 

Source: Respective Trade Association Surveys--data 
compiled by Gordon Associates, Inc., December 1976. 



IV-73 



annual premium cost increases for primary coverage of 100 percent 
cr more. Four additional surveys showed average annual increases 
of between 50 and 100 percent. 

Size and product category relationships are less apparent 
than in the telephone survey. However, all of those surveys in 
the highest third of annual premium cost increases involve 
industries which 
consumer products. 



h 
industries which make "contingent exposure" products, or 



By comparison, the telephone survey shows a 14 percent annual 
increase for small firms, about 2 percent for medium size firms, 
no increase for large firms during the 1971 to 1974 years. In 
the past two years small firms' premium costs have increased 80 
percent annually, as have the costs for medium size firms. 
Average premium costs for large firms have increased 45 percent 
annually. 

The annual percentage increases in premiums for umbrella 
coverage generally were not as large as for primary insurance. 
In a few instances there were small decreases in average premiums 
for umbrella coverage. 

what has been the claims experience of trade association 
survey respondents? 

The telephone survey analysis indicated that smaller firms 
are less likely to experience claims than large firms: 12 percent 
of firms with less than $2.5 million in sales had claims 
experience, compared with 46 percent in the $2.5 to $100 million 
sales category and 83 percent in firms with over $100 million in 
sales. The same trend is evident in table IV-41 when the trade 
association data are organized by size of firm, although more 



"Contingent exposure" is also defined in the glossary in the 
introduction to chapter IV and discussed in more detail in the 
following section. 

IV-74 



TABLE IV-41. — Trade Association Surveys : 
Number of Fjr^s Reporcir.g Ciai-s 

Trade Associations Firms Firms Percent with 

and Predominant Reporting Reporting Claims 

Size of Firas Responding No Claias Claims Experience 

Smat I: 

American Textile Mfrs. 

Institute 14 

Cast Metals Federation 196 50 20 

Society of Plastics Industry- 
Processors 151 45 23 

American Textile Machinery 

Mfrs. 32 10 21 

Mater & Wastewater Equip. 

Mfrs. 20 13 39 

Industrial Heating Equipment 

Assoc. 31 22 42 

Society of Plastics Industry- 
Machinery Mfrs. 37 45 56 

Medium : 

American Textile Mfrs. 

Institute 83 22 21 

National Machine Tool 

Builders Assoc. 21 39 65 

Large : 

American Textile Mfrs. 

Institute 8 21 72 

Railway Progress Institute 2 9 32 



Source: Respective Trade Association Surveys — data compiled by 
Gordon Associates, Inc., December 1976. 



IV-75 



small firms responding to trade association surveys have had 
claims experience than in the telephone survey. 

In two of the major surveys dominated by large firms, 
respondents were not asked if they had claims but rather what 
their claims experience had been like over the past five years. 
Since 83 percent of firms in the Risk and Insurance Management 
Society survey and 92 percent of the companies in the Machinery 
and Allied Products Institutes study provided information on 
claims, it is apparent that claims experience among the members 
of those organizations was widespread. 

It appears that firms of small and medium size are more 
likely to have claims experience if they are engaged in the 
manufacture of workplace machinery or equipment rather than 
consumer goods or "anonymous" products. In Table IV-^-41, the 
higher percentages with claims experience in small and medium 
size categories are associated with workplace product 
manufacturers . 

The number of new claims filed during the 1970^1975 period is 
shown in table IV~42 for trade associations reporting this 
information. The aggregate number of claims presented appears to 
increase each year until 1 974 in every study which collected the 
information on an annual basis. There is evidence of leveling 
off of this trend in 1975 for some trade associations, decreases 
in others and continued or accelerated increases in others. 

The telephone survey uncovered some evidence of a trend 
toward leveling off of new claims after 197^ or 1975, with some 
variation among product categories in the timing of the peak in 
the growth curve. - The exception was an increase in claims 
against large firms in 1975-76. 



IV-76 



HA 


15,149 


NA 


18,633 


9 


6 


12 


20 



TABLE IV-42. — Trade Association Surveys : 
Total New. Claims Presented 1971 -75 

Trade Associations 
and Predoainar.t Total New Claias Filed 

Size of Firas Responding 1971 1972 1973 197* 1975 

tfarge Pirns : 

Risk & Insurance Mar.ageaent Soc. 12,478 

Railway Progress Institute 3 

Small and Mediua Fi^s : 

Industrial Heating Equipaent 
Assoc* 

Cast Metals Federation 

Aaerican Textile Machinery 
Mfrs. Assoc. 

Society of Plastics Industry- 
processors 

Water & Wastewater Equipaent 
Mfrs. Assoc. 

Woodwork Machinery Mfrs. of 
America 

Society of Plastics Industry- 
machinery afrs. 

American Textile Mfrs. Inst. 



15 


8 


15 


17 


33 


10 


181 


20 


24 


45 


NA 


NA 


HA 


22 


31 


34 


47 


68 


100 


125 


6 


8 


15 


16 


17 


15 


25 


18 


39 


39 


48 


138 


148 


197 


181 


71 


94 


104 


141 


108 



Source: Respective Trade Association Surveys— data coapiled by 
Gordon Associates, Inc. , Deceaber 1976. 



IV-77 



Trade association data also reflect the reseat rise in new 
claims against large firms. The Risk and Insurance Management 
Society and the Railway Progress Institute surveys, witn larger 
firms in the preponderance, show 23 percent and 133 percent 
increases, respectively, between 1973 and 1975. The tendency 
toward decreases or leveling off of new claims in small- and 
medium firms is evident in the Water and Wastewater Equipment 
survey (a 6 percent increase in 1975 compared to an 88 nercent 
increase in 1973), the Woodworking Machinery Manufacturers 
Association survey (no change in 1975 after a 117 percent 
increase in 197*0, the Society of the Plastics Industry Machinery 
Manufacturers survey (decreased 8 percent in 1975), and the 
American Textile Manufacturers Institute survey (decreased 23 
percent in 1975). However, several of the small to medium size 
category surveys show continued increases in new claims in 1975. 
The Industrial Heating Equipment and Cast Metals Federation 
surveys show increases of 94 percent and 88 percent, 
respectively. The Society of the Plastics Industry Processors 
Survey shows new claims increased by 2t> percent in 1975. 

The overall trend of increases in the number of pending 
claims which was evident in the telephone survey data, also 
appears in the trade association data (see table IV-**3). The 
biggest increases between 197M and 1975 were found in the Cast 
Metals Federation survey (100 percent increase) and the 
Industrial Heating Equipment survey (78 percent). These 
increases reflect the increases in new claims which association 
members reported in the years 197^ and 1975. 

Are damages sought and settlement amounts increasing? 

Table IV-rU*t shows the amount of damages sought per claim and 
the amount of settlements paid per claim from 1971 to 1975. This 



IV-7 8 



TABLE IV-43. -- Trade Association Survevq: 
Aggre gated ££adlns Clajmp/Sults 1971-15 



Trade Association 

and Predominant 

Size of Firm Responding 

Large.: 

Risk 4 Insurance 



1971 



1972 



American Textile Mfrs. 
Institute 

Industrial Heating 
Equip. Assoc. 

Cast Metals Federation 

Society of Plastics 
Industry 

machinery mfrs. 

processors 

American Textile 
Machinery Association 

Water & Wastewater 
Equip. Mfrs. Assoc. 

Woodworking Machinery 
Mfrs. ASsoc. 

N.A. = Not Available. 



30 



47 



1973 



56 



1974 



Management Society 


2,961 


N.A. 


8,172 


N.A. 


Railway Progress 
Institute 


5 


11 


13 


18 


Medium/Small,: 











32 



Number 
per Fi.-m 
1975 in 1975 



7,341 2i.4 



21 



83 



Source: Respective Trade Association Surveys—data compiled by Gordon 
Associates, Inc. , December 1976. 



1.6 



0.6 



5 


11 


22 


32 


57 


1.1 


5 


10 


13 


24 


48 


0.2 


60 


79 


95 


381 


234 


0.7 


53 


67 


77 


138 


159 


1.1 


3 


12 


15 


2H 


'49 


0.3 


N.A. 


N.A. 


N.A. 


12 


16 


0.3 


12 


12 


\2 


12 


11 


0,3 


1 


7 


5 


9 


12 


0.4 



IV-79 



TABLE IV-44. -- Trade Assqciat^qn Survgys : 
Average Damages Sought P^r Claim and 
Average Settlements Per C laim 1971-75 

Survey 1971 1972 1973 197M 1975 

American Textile Mfrs. Inst: 

Damages Sought ($000) 571 577 717 972 551 
Settlements ($000) 6 11 5 7 13 

Society of Plastics Industry: 

Damages Sought ($000) 249 99 197 164 123 
Settlements ($000) 6 6 4 9 12 

Industry Heating Equip. Assoc: 

Damages Sought ($000) 39 177 122 403 1,625 

American Textile Machinery Assoc: 

Damages Sought ($000) N.A. N.A. N.A. 161 283 
Settlements ($000) 6 92 

Cast Metals Federation: 

Damages Sought ($000) 357 120 442 1,125 651 
Settlements ($000) 113 14 7 4 31 

Water 4 Wastewater Equip- 
ment Mfrs. Assoc: 

Damages Sought ($000) 637 238 51 47 229 
Settlements ($000) 3.4 per settlement 

Woodworking Machinery Mfrs: 

Damages Sought ($000)) 95 230 364 290 344 
Settlements ($000) 86 57 20 117 64 



Source: Respective Trade Association Surveys--data 
compiled by Gordon Associates, Inc., December 1976. 



IV-80 



information is available from only seven of the trade association 
surveys . 

There is a great deal of variation from year to year in the 
amount of damages sought per claim in most of the surveys. While 
there appears to be a general upward trend in the amount of 
damages sought per claim, this trend is not consistent, nor is it 
uniform among all of the surveys. 

The trend in damages paid per settled claim is eaually 
obscure. Several of the surveys show some tendency for the 
average amount of damages paid to increase gradually during the 
1971-75 period. However, this trend is not very consistent, even 
among those surveys, and for several of the surveys there is no 
trend at all. 

The Machinery and Allied Products survey obtained data on the 
amount of damages sought per claim for selected years from 1965 
to 1975. The average amounts sought per claim were as follows: 
1965— $1,730; 1970— $7,258; 1973— $6,819; and 1975— $8, 234. 
While there was some fluctuation in the amount between 1970 and 
1975, the trend appears to be clearly upward. 

The Machinery and Allied Products Institute survey also 
included a breakdown of settlements plus reserves, by size of 
claims paid or reserved for selected years between 1965 and 1975. 
This is the only information of this type provided to the 
Industry Study, and it is useful in interpreting trends in 
settlements paid and amounts reserved. 

While the data for 1975 are regarded as not yet complete, 
there is an unmistakable shift toward more large claims in recent 
years. This shift is consistent with the increases in the 
average amount of damages sought per claim during this period. 



IV-81 



Machinery and Allied Products Institute Survey 

Frequency of Claims by Size--Claims Paid and Reserved 

Number of Claims Paid and Reserved 

Size of Claims 1965 1970 1973 1975 

Less than $1,000 4,285 4,181 4,492 2,584 

$1,000 to $10,000 906 1,476 1,898 1,291 

$10,000 to $100,000 195 530 849 492 

$100,000 to $500,000 19 64 169 90 

$500,000 to $1,000,000 2 11 15 41 

Over $1 ,000,000 4 17 11 



Source: Machinery and Allied Products Institute, Products 
Liability : A MAPI Survey . August 1976. 

What proportion of the claims presented was settled through 
court judgements? 

Two of the trade association studies presented overall claims 

disposition information for the period since 1970. The data on 

dispositions of claims for these two surveys are summarized 
below: 

Machinery and Allied Products Institute Survey 
Disposition of Claims Presented During the 1970-75 Period 

Number Percent Percent 
of Claims of Claims of Claims 
Reported Disposed of Accounted For 

Total claims presented 
Claims rejected by company 
Claims paid administratively 
Suits settled out of court 
Court judgments against company 
Court judgments for company 

Total dispositions 9,148 100 58 

Suits pending 3,203 21 

Claims pending 3,272 21 

Total claims accounted for 15,623 100 

Claims unaccounted for 1,162 



16,785 


- 


- 


2,858 


31 


18 


4,396 


48 


28 


1,218 


13 


8 


212 


2 


1 


464 


5 


3 



Source: Machinery and Allied Products Institute, Products 
Liability : A MAPI Survey . August 1976. 

IV-82 



National Machine Tool Builders Association Survey 
Disposition of Claims Presented During the 1970-76 Period 



Total claims presented 

Claims dropped 

Claims settled out of court 

Court suits lost 

Court suits won 

Total dispositions 

Pending claims 

Claims subject to action 



Number 


of Claims 


Reported 


771 


186 


145 


16 


42 



392 
436 
828 



Percent Percent 

of Claims of Total 

Disposed of Claims 



47 

37 

4 

1 1 

100 



22 

18 

2 

5 

47 

53 

100 



Source : 
1976. 



National Machine Tool Builders Association Survey, 



Although the data are not presented in exactly the same 
manner for the two surveys, both show the percentages of cases 
dropped or rejected, settled out of court, and won or lost in 
court. Court judgements accounted for 7 percent of the claims 
disposed of in the MAPI survey and 15 percent of those disposed 
of in the Machine Tool Builders survey. 

Five other trade association studies presented some data on 
the disposition of claims and suits. Table IV-45 summarizes this 
information for those five surveys, plus the two presented in 
detail above. 

These trade association surveys show between 3 and 15 percent 
of claims disposed of being settled in court. The record of 
suits won and lost in court judgments by the companies reporting 
in these surveys is shown in table IV-^46. 



IV-83 



TABLE I V- 1 5 . - -Trade Association Surveys : C ourt J udgments 
as a. Percent £f Total Claims and Claims disposed o f 1970-75 (6) 



Trade Association Survey 

Machinery and Allied Products Inst. 

Nat. Machine Tool Builders Assoc. 

Water & Wastewater Equipment Mfrs. 
Assoc. 

Industrial Heating Equipment Assoc. 

Society of The Plastics Industry 

American Textile Mfrs. Institute 

Cast Metals Federation 



Number of 


Percent 


Percent 


Court 


of Claims 


of Total 


Judgements 


Disposed of 


Claims 


676 


1% 


H 


58 


15 


7 


2 


3 


2 


3 


10 


3 


71 


11 


5 


30 


7 


5 


6 


H 


5 



Source: Respective Trade Association Surveys--data compiled by 
Gordon Associates, Inc., December 1976. 



IV-84 



TABLE IV-46. — Trade Association S urveys ; 
Outcome pX Court Judgments 

Cases Won Cases Lost 

Trade Association Survey No. Percent No. Percent 

Machinery and Allied Products Inst. 464 69 212 31 

Nat. Machine Tool Builders Assoc. 42 72 16 28 

Water & Wastewater Equip. Mfrs. 

Assoc. 2 100 

Industrial Heating Equip. Assoc. 1 33 2 67 

Society of the Plastics Industry 40 56 31 44 

American Textile Mfrs. Inst. 17 57 13 43 

Cast Metals Federation 3 50 3 50 



Source: Respective Trade Association Surveys--data compiled 
by Gordon Associates, Inc., December 1976. 



IV-85 



Data on the amounts of court awards in product liability 
cases are very limited. However, from the information that is 
available it is not possible to discern any trend in the size of 
court judgments. The information reported by the individual 
trade associations is presented in Appendix C of Volume II of 
this report. 

What impact has product liability had on trade association survey 
respondents* management and production decisions? 

Discussions of implications of the product liability problem 
on management and production decisions, the perceived causes, and 
remedies for the situation were included in studies by 
associations which are predominantly representative of large 
firms. The data suffer from limitations of noncomparability ; no 
two surveys arrayed the same remedies for respondents' reactions 
or presented the questions in comparable fashion. Table IVwkl 
indicates that a number of firms responding to the trade 
association surveys believe that better quality control and 
product redesign are effective preventive strategies for control 
of products liability. This is the same response as the large 
firms gave in the telephone survey. 

A number of consumer products manufacturers indicated that 
advertising changes and warranty disclosures were factors in 
product liability prevention programs in their firms. A small 
number of respondents, in four of the five trade associations 
surveys covering the topic, indicated that virtually the only 
effective remedy for control of losses and risks is dropping 
products. This measure appears to be viewed as a last resort in 
preventive programs and is not strongly favored. 



IV-86 



TABLE IV-47. -- Trade Association Surveys : Summary of 
Product Liability Prevention rrozr&ms and. Other impacts 

Trade Association Survey 
Responses 



Prevention Program 
Clements and 
Other Impacts 


Auto Parts & 
Accessories 
Mfrs. Assn. 


General 
Aviation 
Mfrs. Assn. 


Machinery 
and Allied 
Products 


Risk & 

Ins. Mgmt. 
Society 


Woodworking 

Machinery 
Mfrs. Assn. 


Increased Recalls 




5 














Redesign 




33 




1 




1 


71 


24 


Advertising 
Changes 




24 














Warranty Changes 




38 














Better Quality 
Control 




55 




1 




1 






Drop Products 




7 




1 




1 




7 


User Training 
Programs 








1 











Other Impacts: 

Increase Work- 
related Claims 

Difficult to get 
PL Insurance 

Increased Product 
Cost 

Increased Consumer 
cost 



63 

169 

78 

1 



25 
27 
27 

1 



Mentioned, but no data provided. 

Association Surveys--data compiled by Gordon 



Source: Respective Trade 
Associates, Inc., Deoeraber 1976. 



IV-87 



What remedies are favored in trade association surveys? 

Remedies were assessed only in surveys dominated by large 
firms. As shown in table IV-48, among suggested solutions with 
considerable support were proposals for insurance remedies, 
limits on damages and contingent fees, a statute of limitations 
and workers compensation as the exclusive source of payment for 
product-related injuries. Trade association surveys also found 
support for several legal defenses such as misuse and 
modification, state-of-the-art and compliance with government 
safety standards. 

In the two surveys that presented the proposals, government 
insurance and no-fault insurance received low to medium support. 
And, in the one survey which provided for a choice, joint 
underwriting associations were preferred to government insurance. 

Qualitative findings from the trade association surveys will 
be discussed further in the remedies assessment part of the 
following section. 

SELECTED FIRM VISITS 

Discussion Scope and Approach 

Visits were made to 20 firms for the purpose, of obtaining 
firsthand information about their product liability experience 
and to solicit comments on proposed remedies. Firms were 
purposefully selected with the assistance of the trade 
associations that had agreed to cooperate in this study and the 
Interagency Task Force on Product liability. The distribution of 
firms by product category and annual sales volume is shown in 
table IV-49. 



IV-88 



TABLE IV-48. -- Trade Association Surveys : Number o_£ 
Firms Anions; R espondents Fayorjag, fiejaejlv. 



Proposed Remedies 

Joint Underwriting 
Association 

State or Federal 
Insurance 

No Fault PL Insurance 

Binding Arbitration 

Statute of 
Limitations 

Workers Compensa- 
tion as the Exclusive 
Source of Reparations 

Limit Damages 

Limit Contingent Fees 

Loser Pays 

Defenses: 

Altered Equipment 
State of the Art 
Collateral Source 
Federal/State 
Safety Standards 
Compliance 



Auto Parts 4 
Accessories 
Mfrs. Assn. 



35 

25 
20 
16 

57 

1 
68 
74 

9 



General 

Aviation 

Mfrs. Assn. 



Machinery 

and Allied 

Products Inst. 



98 
79 



195 



161 



156 

195 
166 

166 



Risk & 

Ins. Mgrat. 
Society 



Woodworking 

Machinery 
Mfrs. Assn. 



31 



29 




109 


31 


14 


31 


102 


29 


50 


29 




21 


162 


34 
34 
34 



34 



Note: All surveys presented opportunities for multiple 
choices. Figures are not cumulative. 

Source: Respective Trade Association Surveys—data compiled 
by Gordon Associates, Inc. , December 1976. 



IV-89 



TABLE IV-U9 — Composition of Selected Firm Discussion Sample 

Small Medium Large 
Under $2.5 $2.5 to $100 Over $100 

Product Category Million Million Million 

Machine tools 

General purpose XX X 

Special purpose X X 

Grinding Wheels X X 

Industrial chemicals X X 

Castings X X 

Auto parts X X 

Lawnmowers X X 

Medical devices X X 
Drugs X 
Sporting goods X 



Source: Selected Firm Discussions, Gordon Associates, Inc., 
December 1976. 

The discussions were structured to focus on two aspects of 
the firm's product liability experience: product liability 
prevention and methods of limiting financial liability. The 
product liability prevention portion of the discussion was 
designed to identify the products and product areas where a 
problem exists or is perceived, e.g., consumer products versus 
capital goods, "old products" versus recently manufactured ones, 
and the more troublesome products. The second purpose was to 
learn as much as possible about the methods and programs used to 
keep unsafe products from getting into the hands of buyers, or, 
if they somehow do, to take corrective action. Also, an attempt 
was made to determine how well these programs work in practice, 
how they are funded, their organizational placement and 



IV-90 



authority, reasons for initiation when established, personnel 
background, and the role of safety standards in the program. 

The financial liability limitation part of the discussion was 
concerned with the firm's experience with product claims, 
measures taken by the firm to limit its legal and financial 
liability, and the impact of product liability on the firm. 
Included were topics such as number of claims, type and amount, 
experience with subrogation, third party claims and 
indemnification, outcomes of litigation, and financial impact on 
the firm. 

The dialogue on risk management related to kinds and levels 
of basic and excess product liability insurance, deductibles or 
self-insurance, use of captive and self-funded insurance, methods 
of obtaining coverage, rating practices, contractual limitations, 
and any other provisions made to protect the firm's assets. 

Half a dozen remedy proposals were also presented for the 
firm representatives' reactions: 

« Making workers compensation the sole source of 
reparations for workplace injuries. 

• Compensating people who suffer damages from a product 
without regard to fault. 

• Letting the manufacturer elect conventional insurance 
methods or the no-fault method. 

• Letting the injured party elect to collect a certain 
amount without regard to fault, or to make a 
conventional claim. 



IV-91 



• Guaranteeing product liability insurance contingent upon 
the firm's compliance with certain standards of product 
liability prevention and financial responsibility. 

• Limiting liability through determinations- b-y an 
independent authority of: 

useful product life, 

• — state-of-the-art at a given point in time, 

a method to determine misuse, and/or 

mandatory or voluntary standards. 

The role of State and Federal Government was explored, 
particularly with reference to insurance regulation, no-fault 
compensation, insurance or reinsurance, and product regulation 
through OSHA or CPSA standards. 

Background on Selected Firms 

In evaluating the characteristics, experience, and opinion of 
the firms selected, it should be recognized that their selection 
was suggested by executives of trade associations which cover the 
appropriate industry. Some of those consulted volunteered the 
information that they were active in the trade association 
specifically because of the assistance the association could 
provide in securing insurance coverage or taking group action to 
address the product liability problem. 

Several of these individuals had been insurance brokers at 
some time in their careers before going into manufactuirng or 
management. Others were attorneys, and some are insurance 



IV-9 2 



managers of their companies, although they may have only a casual 
knowledge of how the insurance industry works. Their perceptions 
of the cause of the problems and reactions to proposed remedies 
vary understandably, as much by background of the interviewee as 
by the firms' experience, the industry, the exposure, and the 
product. But, they all have a common concern for the inherent 
safety and the safe operation and use of their products. Their 
responses represent the position and experience of companies 
which are willing to bear the expense of product safety or 
quality control programs. 

The industry categories were originally selected to represent 
producers of industrial equipment and producers of items used by 
individual consumers. As the details of the product uses were 
elicited in the conversations, however, more analytically 
meaningful distinctions emerged. 

If, as this sample has permitted, the variables of safety, 
quality control and user education are controlled, some 
relationships between claims, third party suits, subrogation, and 
manufacturer anonymity can be seen. 

The metal castings and industrial chemical firms visited made 
essentially anonymous products which are produced to the 
specifications of others. The same is true of generic drugs (but 
not name brands) . Some products in the grinding wheel industry 
are in this category too, but not a significant portion of the 
grinding wheels products of the firms visited. Anonymous product 
manufacturers report no claims experience, or limited property 
damage as opposed to personal injury claims. 

Machine tools, most of the grinding wheels produced by firms 
in this sample, medical devices, and automotive parts are 
traceable through nameplates, serial numbers, and the like to the 



IV-9 3 



manufacturer. Their safety is dependent upon appropriate use in 
the workplace and by medical practitioners. More claims are 
reported for these types of products than for anonymous products. 
In 15 to 100 percent of the cases, reported claims were third 
party, workers compensation subrogation claims, or related to 
medical malpractice suits. 

Most claims are reported in the direct exposure category. 
These are easily traceable products, used by consumers without 
extensive instruction or supervision, other than what comes with 
the product or is transmitted at the time of sale. The claims 
include considerable personal injury and are without subrogation 
action . 

Claims considerably exceeded awards in number and amounts for 
these firms. Yet, in spite of their extraordinary efforts in 
product liability prevention and good claims records, the cost of 
product liability insurance has risen for all the companies 
contacted. Those which have not renewed their coverage since 
197^ have all been warned that they can expect large premium 
increases or refusal to renew. There is no pattern to the rate 
increases if size is used as the criterion for comparison. In 
the same industrial category there were instances of premiums 
doubling and others increasing tenfold. In general, it appears 
that small firms experienced more severe increases than large 
ones, but there is an instance of one of the largest firms in an 
industry experiencing an increase from $M3 t 000 to a minimum of 
$331,000 in product liability premium charges between 1975 and 
1976. In this case there was no change of coverage nor claims 
experience between the 2 years. Comments from all firms support 
an impression of most severe financial impact on the smaller 
firms. Expressions of desperation, thoughts of going out of 
business, cancelling lines of production, and dread of the 
"catastrophic personal injury claim that could wipe me out" are 



IV-94 



common in the small firm interviews. Large firm representatives 
have also commented that they think the small firms are impacted 
much more severely since they are more "at the mercy of insurance 
carriers," have fewer resources to selfr-insure, and perform their 
own investigations and defense functions. They have less 
capacity to bounce back or absorb the financial drain of a large 
judgment against them. 

Product Liability Prevention Programs 

These individuals generally expressed strong feelings about 

individual responsibility and would like to see less emphasis on 

liability fault finding and blame shifting, and more on 

responsible production, distribution and use of products. In 

this context product safety is a shared responsibility, and the 

manufacturer's "share" of the responsibility is to praduce as 
safe and reliable a product for a given use as is possible. 

They believe that manufacturers ought to provide adequate 
warnings, instructions and field service to insure that 
potentially dangerous products can be used safelv. However, they 
are critical of a system which would hold them accountable for 
the misuse of the product, or its unauthorized alteration or 
flagrant ignoring of clear warnings and labels. They condemn a 
compensation system which "rewards the reckless and the feckless" 
and encourages irresponsibility among other parties who ought to 
be sharing the responsibility for the safe use of the product. 

Organization for product safety 

The selected firms typically have placed the focus of 
responsibility for product safety, quality control and claims 
handling and/or prevention at a high level. In large firms this 
is often a committee consisting of major division heads, and key 



IV-95 



individuals such as legal counsel, engineering chiefs, quality 
control and management personnel. Invariably such a committee in 
a large firm has the chief executive or his representative on it 
or has direct access to the chief executive of the firm. 

Commonly, the safety committee has an official policy 
statement and manuals or procedures detailing how the policy is 
to be implemented. Regular reports are made to management and 
the line units. Among the specific functions of such committees 
are : 

• Promoting safety, evaluating programs and making 
recommendations for improved safety performance. 

• Insuring effective communication regarding claims, 
safety and product liability matters. 

• Reviewing claims to determine what went wrong, and to 
initiate appropriate adjustments in design, quality 
control, instructions and labeling or field service to 
prevent repetition. 

• Reviewing, testing and monitoring instructions and 
labels, warranty, retrofit and recall, and quality 
assurance programs. 

• Providing consultation and technical support to 
divisions or field offices regarding safety, quality 
control and product liability concerns. 

In smaller firms the organization is less formal and 
frequently concentrated on one individual for coordination, the 
president, owner, chief engineer or head of quality control, 
rather than a committee. A very sophisticated claims follow-up 



IV-96 



and decision making systems, involving an informal claims 
reporting network of dealers and field representatives, and 
legal, insurance and engineering consultation at appropriate 
points, was presented by one of the smaller firms visited. 

Formal policy statements in two of the firms make it clear 
that, to them, safety and protection of the firm's assets are as 
important as production, sales and quality goals. Most have 
taken the initiative to adopt standards for their products above 
the basic safety requirements. One will not do maintenance on 
old machines unless they can be brought up to current safety 
standards. Two will not manufacture parts to others' 
specifications unless they comply with industry standards. Three 
firms are manufacturing safety products on a marginal basis and 
actively "selling safety" within their industries. One firm 
reported that it has a substantial profit sharing program, and 
employees police each other on safety practices because claims 
and insurance losses reduce profits. 

Among the product safety policies reported by selected firms 
were several designed to provide incentives for in-house safety 
as well. One firm reported a policy which forbids piece work 
incentive scales in their own production because they have found 
that workmen alter or remove safety devices to get more output. 
Two firms expect every employee to be a safety expert; one of 
these has an employee involvement and education program which 
reviews every accident, however minor, with the employees and 
analyzes what could have been done to prevent it. 

Standards 

Many of the individuals spoken to have been active in 
developing Federal and voluntary industry standards, industry- 
wide product testing and related quality advisory activities. 



IV- 9 7 



With the exception of firms in industries policed by the FDA, 
there was little perception that outside standards made any 
difference in the firms' quality control practices. In fact, 
federal standards were commonly used as a benchmark for 
comparison of the superior performance or quality of their 
products . 

Several of the firms reported routine measures employed to 
pursuade their buyers to comply with OSHA standards in the 
workplace and relevant industry or trade association 
manufacturing or performance standards in other circumstances. 
Some companies reported refusing orders for products which would 
not be safe in their opinion, either because of faulty design by 
the buyer, or requests to limit or omit safety devices. 

Documenting the product quality 

All of the firms selected have extensive sampling, testing, 
and quality assurance procedures to ensure that faulty or unsafe 
products do not get into circulation. Performance and safety 
checks at the end of production are done for every product, and 
some are tested at several stages of production. Subcomponents 
purchased from other manufacturers are tested, too, before being 
employed in the manufacturing process. Firms record the test 
results of their products at the time they leave the plant, and 
in some cases photograph the product to show safety devices in 
place. One company holds new products for ninety days after 
manufacture of the first batch to allow for extensive field 
testing . 

Several firms install machinery and instruct the users or 
supervisors in its safe operation. If the conditions for use of 
the machinery are not safe, the installation worker notifies the 
new owner and makes recommendations for adjustment. This is 



IV-98 



followed up by the manufacturer in person and through 
correspondence . 

User programs 

All of the firms reported careful measures bo ensure that 
ultimate users operate their products safely. For capital 
products, they go as far out along the distribution chain with 
the product, giving instructions and supervising installation, as 
they are permitted. One firm, dissatisfied that it had not 
reached the ultimate user with its personal educational program, 
fastened notes prominently on the product inviting the user to 
contact them for further instructions, or to answer questions 
that were not sufficiently clear in the instruction manual. 
Several of the firms are developing printed instructions and 
orientation materials in languages other than English. 

Knowing that not all users are literate in any language and 
even readers are not inclined to pore through lengthy 
instructional materials, the firms are going to great lengths to 
prepare and test a set of simple and basic instructions and 
warnings, with illustrations and symbols rather than many words, 
and to see that these do not become separated from the product. 
Usually, the complete instructional manual is also provided in 
ample quantity as well. One company reduced its operating 
instructions to a short list, tested them for clarity on a 
population of operators of varying backgrounds outside the field 
in which the equipment would be used, and anodized these on the 
face of the equipment next to the operating control. Another 
firm places the basic instructions in a container welded to the 
machine in such a way that they cannot be removed without making 
the machine inoperable. Safety labels are being made bigger and 
more arresting. 



IV-99 



The selected firms also try to keep in touch w^th their users 
through regular mailings on safety, maintenance, do's and don'ts 
reminders, and active field maintenance programs which monitor 
the condition of products and their use. This is more feasible 
in the contingent exposure product group than in the anonymous or 
direct exposure groups. Direct exposure products are 
particularly difficult to track as mail-rin registrations on such 
products rarely exceed 25 — 35 percent of the Droducts 
distributed. However, one firm reported that they had succeeded 
in getting back 50 to 60 percent of warranty forms by requiring 
their dealers to report all first owners to the manufacturer and 
enlisting the dealers support to encourage buyers to mail-in 
their registrations. 

Because of these inherent difficulties of consumer education 
by manufacturers, several of the firms suggested that mass 
education of the consuming public regarding certain potentially 
dangerous products ought to be done as an on-going government 
program . 

Recall and retrofit 

The firms report limited success with recall and retrofit 
programs. For consumer products only one recall success was 
reported, in a case where the entire batch recalled was still in 
warehouses. Several machinery manufacturers have retrofit 
programs for older machines. In one case, the manufacturer is 
the only source of maintenance for these machines, and has been 
able to enforce a retrofit program. In other cases, the users 
are unwilling to bear the extra expense of retrofit kits and 
devices, and the programs have not been as effective as the 
manufacturer would like. 



IV-100 



More firms have the capability to. recall their products and a 

plan to do so if any of their products proves faulty or is 

involved in an unexplained accident or injury. However, they 
have not had occasion to employ these procedures. 

Claims handling 

These firms are very alert to claims and complaints, and have 
a "bend over backward" policy regarding repair or replacement of 
any product which does not perform as specified. They are 
aggressive in initiating their own investigations upon any report 
of damages or injury in which their products are involved. Two 
firms do not wait until a claim is filed; they use their field 
maintenance and dealer networks to "get the facts of the incident 
before a fault mentality sets in." It is also a common practice 
among these firms to insist that a faulty product be returned to 
the manufacturer in order that the quality control and 
engineering personnel may examine it. 

Selected firms indicate that their aggressive claims 
investigation programs are helpful from two points of view: They 
allow the firm to determine the facts of their product's 
involvement in an accident early, while the information and 
evidence are still fresh, which aids them in making Drompt and 
definitive decisions regarding defenses and/or settlement. They 
feel this avoids the vague situations which invite drawn out 
"contingent fee" suits. From the other point of view, the early 
and aggressive claims investigation provides feedback on product 
performance to the quality control and engineering people of 
their firm, which enables them to make indicated adjustments in 
the manufacturing process and product design as soon as possible. 



IV-101 



Dropping or postponing introduction of products 

Six of the twenty firms visited reported some constraint or 
reduction of product lines because of product liability 
considerations. Among the large and large-medium firms, one had 
stopped making a major line and had sold off a large division 
while adding a safety product line; another had cancelled a 
troublesome line of products, another stopped making a major 
product when a supplier refused to correct a hazardous defect in 
a major component; and, a fourth firm cancelled a component made 
by a subcontractor and recalled and retrofitted all the machinery 
in the field which used that component. 

Decisions not to introduce products were in the small firms: 
One repeatedly refused to make parts on specifications which the 
owner felt were unsafe, and another decided not to manufacture 
pharmaceutical products which the owner thought involved too much 
FDA control of his operation. 

Impact of prevention programs 

• 
None of the firms was able to demonstrate any relationship 
between its prevention program and its product liability 
insurance costs. One, which had trained its carrier in loss 
prevention and safety techniques and maintained very close 
communications with the carrier's representative, suggested that 
this may have helped to hold the increases down in previous years 
but not at present. 

The firms indicated no participation by carriers in making 
product safety and manufacturing process recommendations. Two of 
the large firms, however, had received encouragement from their 
carriers to organize their safety committees and one regularly 
consulted with the carrier's representative in committee actions. 



IV-102 



As one representative put it, "We don't like to see people 
hurt by our products." And, another said, "Good quality control 
is good business." The real impact of the prevention programs 
has been to prevent injuries, and thereby minimize claims and 
insurance losses. The firms are more anxious than their 
carriers, as a rule, to fight unjustified claims because they are 
confident in their safety and quality control programs and feel 
they have sound grounds to defend themselves. At the same time, 
they are more willing to take corrective action if they feel 
their products are responsible for damage or injury. This takes 
the form of active customer relations programs, expeditious 
claims handling and streamlined communications feeding back to 
the manufacturing process regarding product design, use, and 
potential liability risks. 

Remedy Assessment 

The majority of respondents did not feel sufficiently 
informed regarding applications and implications of the proposed 
remedies to evaluate them. Discussion during the interviews was 
necessarily on a conceptual level. Those who had most to say had 
prior experience in the insurance industry or legal profession. 

Therefore, these responses should be viewed as derived from 
individual philosophy, experience (in most cases tort^related) , 
and in-house and trade association discussion as much as from the 
brief presentation of the proposed remedies. 

Differences in financial arrangements for insuring against 
product liability risks are evident in the three exposure 
categories, as have been their claims experience. There are 
signs of these differential experiences in the preferred remedies 
in each group. 



IV-103 



The following discussion relates insurance experience and 
risk management reactions of the firms to preferred remedies, by 
exposure category. 

The anonymous group .--Bearing in mind that these firms have 
had little or no claims experience, observed tendencies are to 
operate with increased exclusions, deductibles, reduced coverage, 
and to think seriously about "going bare." One firm is not 
covered and is not sure coverage is needed. Three of the five 
experienced reduced coverage in the past year. The three that 
were insured paid four times as much for the same or reduced 
coverage as they did a year ago. Seven are unable to find 
carriers and they are all concerned about availability. 

In the anonymous group, three of the five firms strongly 
support the guaranteed product liability insurance remedy, and 
one more approves of this but prefers the workers compensation 
sole relief remedy. There is an unusual cluster of opinion in 
this group in support of control of maximum payments based on a 
standard schedule, but not favoring the workers compensation sole 
relief remedy. This could reflect the serious concern for 
insurance availability in this group. 

The direct exposure category . — Three of these firms have had 
relatively high claims levels. They all decided last year to 
self-insure to the $100,000 level. Reasons given all relate to 
dissatisfaction with insurance carrier service. The firms wanted 
to fight unjust claims and insurance companies were paying them 
without protest. The firms wanted to protect their product 
reputations and keep records clean, so they are now doing their 
own investigation and defense. 

The fourth firm in this category is a very small manufacturer 
of a specialized safety-related product. Its gross sales are 



IV-104 



less than one-half the minimum figure used to calculate the 
insurance premium. Coverage is one-fifth of what it was last 
year for 57 times the cost. The owner feels he must cover his 
dealers, as well as himself, as an incentive to carry his line, 
which is more expensive but of a much higher auality than the 
competion's. He sees no option available but to pay what he is 
charged for the coverage. Exposure in his industry is too great 
and his resources are too limited. 

The contingen t group .-^-This is the group of firms that has had 
intermediate numbers of claims made against them, many related to 
workers compensation subrogation, third party, and medical 
malpractice actions. The picture is one of complicated balancing 
of risks and costs; they are not able to seriously consider going 
bare, as do the anonymous firms, or to take on the full self- 
insurance and self-defense responsibilities, as have most of the 
direct exposure firms. 

Members of the direct exposure group are forced to maintain 
excess coverage against risks over which they have little 
control; for actions of employers or professionals who use their 
product and might precipitate claims through its misuse. These 
firms are then routinely involved, however remote their liability 
may be. Ten of the eleven firms have kept up their umbrella 
limits through accepting exclusion of vendors (three firms), 
increasing self-insurance and risk-retention levels (six firms), 
and paying more in premiums than the carrier could reasonably 
have expected to pay out (two firms). The one firm that has a 
reduced coverage with a new carrier after being refused renewal 
is "frankly trying to buy the carrier's friendship" in hopes of 
geting better coverage at a later date. Four firms have had to 
canvass 20 to 30 carriers when faced with nonrenewal, to get one 
to three bids. 



IV-105 



Table IV-50 displays the overall response of selected firms 
to the proposed remedies. The preferences expressed are 
generally representative of the Contingent Category, which 
numerically dominates the firms in which dissuscions were held. 

TABLE IV-50. — Selected Firms Preferences for Remedies 

Proposed Remedy Freauency 

An external authority to determine safety quality 

standards 10 

Control, graduate or eliminate contingent fee 

system for attorney compensation 9 

An external authority (technically qualified) to 

determine state-of-the-art at a given point in 

time 8 

Control awards and award procedures: maximum 

amounts; standard schedules based on type of 

injury; award to injured only; loser pays all 

legal costs 8 

External authority to determine negligence, misuse, 

alteration of safety devices 7 

Guaranteed insurance contingent upon compliance 

with safety and financial standards 6 

Workers Compensation as the exclusive 

source of reparations 5 

Control or limit subrogation — collect only once 

for the same occurrence 4 

Out-of-court settlement, technical hearing panels 

or mandatory arbitration 4 

External determination of useful life--statute of 

limitations M 

No-fault proposals 2 



Source: Selected Firm discussions, Gordon Associates Inc., 
December 1976. 

IV-106 



Summary of Remedy Discussions 
Safety standards 

One of the major messages from the selection of firms visited 
was that prevention is the best remedy, and selfi-imposed 
standards are the only real prevention program. Those firms 
under FDA regulation found the regulation onerous, but also a 
sort of security blanket. The ideal for these firms would be a 
standard which is genuinely related to product safety assurance, 
and has sufficient monitoring and documentation procedures to 
allow it to provide the same type of security as the FDA 
regulations. Fifteen of the twenty firms visited are using their 
own standards or similar criteria, but these do not provide "de 
facto" security since they are not government validated and could 
be interpreted as self-serving. 

These firms feel that government regulation is not. the 
perfect solution, citing OSHA and the overtaxation of government 
resources in its enforcement as indication that large scale 
government product regulation is not economically feasible. They 
also point out that when government regulates product safety, 
consumers become less careful in its use, having developed a 
false sense of security. They feel, too, that government 
standards are too rigid and difficult to improve and modify in 
response to specific product requirements. They would prefer to 
see the opposite effect of any government intervention, i.e., an 
increased user awareness of potential product hazards and more 
care and responsibility by the user. 

Among the selected firms the adoption of standards is 
endorsed as much in the interest of safety and product 
reliability as the interest in a defense in product liability 
suits. By comparison, two of the trade association surveys 



IV-107 



presented only defense aspects of standards among, their proposed 
remedies: The General Aviation Manufacturers Association 
narrative summary listed "establish reasonable standards of 
warning" second among its seven recommended remedies; this is a 
heavily regulated industry already. The Machinery and Allied 
Products Institute survey ranked "establish health and safety 
standards as a defense" among its second highest endorsement 
category. 

Workers compensation as the exclusive source of reparations 

The most common reaction to this proposal relates tD the 
gross inadequacy of workers compensation scales for reimbursement 
in most States. Selected firm representatives comment that the 
rates should be tied to the Consumer Price Index or some other 
index, as is Social Security, if workers compensation were to be 
a base for a broader compensation system. 

The next reaction concerned who would pay the additional 
compensation. Suggestions included: The employer, if a payment 
system which cost the careless employer more than the employer 
who had an effective safety program were worked out. The 
manufacturer, on the basis of a one time only contribution to the 
system for each industrial machine manufactured. The government, 
or the taxpayer, since the consumer is already paying the price 
of product safety through insurance or safety program costs which 
are passed on. 

Support for this remedy is strong among manufacturers of 
workplace products, particularly where third party suits have 
been most common, in the machine tool, grinding wheel and 
castings industries, as reflected in the selected firm 
discussions. This remedy was also included in two of the four 



IV-108 



trade association surveys which solicited opinion on remedies. 
It received some support in each of those surveys. 

No-Fault compensation systems 

# 

The adoption of a no-fault compensation system as an 
alternative to tort was discussed because of its potential as a 
long-term approach to streamlining product liability claims 
handling. It would have several advantages over the near^term 
remedies depending upon whether a pure no-fault system; i.e., one 
in which a complete bar-to-tort relief was imposed, or a modified 
one with varying levels of tort relief keyed to the extent of 
economic losses, was adopted. Theoretically, either system would 
eliminate the bulk of present consumer product tort actions. 
Properly designed it could be integrated with other first or 
third-party reparations sources, either those of the manufacturer 
or injured party. By imposing a schedule of benefits, a no-fault 
system would reduce present uncertanities concerning loss 
experience. Depending on the claims characteristics of such a 
system, it could substantially control the rate of escalation in 
basic product liability insurance premiums. 

The Industry Study found interest in the selected firm 
discussions regarding the development of "equitable compensation 
systems on a scheduled basis akin to workers compensation" for 
handling product injury compensation. Moreover, some firms 
interviewed were thoughtful enough to have considered fundamental 
questions regarding the eligibility and scope of compensation for 
injuries under such a system to encompass "willful manufacture 
and distribution of defective products" and exclusion of 
"significant misuses" by consumers from entitlement to benefits. 
However, the selected firms did not respond favorably to features 
of proposals espoused by Professor Jeffrey O'Connell, a noted 
proponent of no-fault, for election as to product coverage. 



IV-109 



The degree of understanding of this proposal and the reaction 
to it were influenced by personal experience and disappointment 
with state-administered automobile no-fault insurance programs, 
judging from the responses of the selected firms. 

No-fault proposals were presented in the Automotive Parts and 
Accessories Association and the Machinery and Allied Products 
Institute surveys and received modest support in each. 

Joint underwriting associations 

Several companies visited, noted that their ability to get 
insurance at any rate was directly affected by the demand for 
coverage which has exceeded the capacity of the insurance 
industry. In effect, the same risk is being insured against by 
several different firms in the manufacturing and distribution 
chain. Some insurance companies have been frank enough to tell 
firms they will no longer insure; that there are no reliable 
statistics on product liability incidence, but they are unwilling 
to write coverage against a potentially unlimitable risk, given 
the number of products in use. 

The response to this problem has been an attempt by groups of 
firms and trade associations to guarantee the availability of 
coverage by formation of joint underwriting organizations for 
product liability insurance. Several of the selected firms 
pointed out that this does not really solve anything for the firm 
which has an effective preventive program, since they will simply 
participate in the cost of other firms' liability risks. 
Instead, they would prefer a system which permitted a cost 
differential depending on the firm's track record and preventive 
program. Selected firms which were most concerned about 
availability, however, supported this remedy along with the 
guaranteed insurance remedy. 



IV-110 



One trade association survey, done by the Automotive Parts 
and Accessories Association, presented the joint membership 
underwriting remedy for reaction. The response ranked this 
remedy at the middle of the range of nine broadly varied 
proposals. Above it were limitations on liability, and limits on 
contingent fees and damages; below were no-fault, State and 
Federal insurance and binding arbitration proposals. 

Hold harmless clauses 

One means of limiting liability is to define the mutual 
duties and responsibility standards via contract between buyer 
and seller. The discussions uncovered several examples of such 
practices. These practices ranged from de facto hold harmless 
for small claims to extension of hold harmless from raw material 
supplier through large retail distributors, coupled with matching 
product liability coverage certifications. 

Those who are self-insured were particularly meticulous in 
their efforts to detail liability limits through this mechanism. 
Some firms reported an inability to purchase materials or 
machinery they desired because their insurance coverage would not 
provide the seller the liability protection sought in the 3ales 
contract. Others are purchasing coverage they are not convinced 
they need because their buyers insist on it. 

However, when asked about the efficacy of this remedy, most 
of the selected firms expressed no interest in it, or volunteered 
information that such agreements have not provided sufficient 
defenses in cases decided on strict liability grounds. None of 
the trade association surveys presented this approach for 
evaluation . 



IV-111 



Useful life determination and statutes of limitations 

Selected firms tendered a low level of support, very 
conditional, for remedies involving determination of useful life 
or a statute of limitations. They acknowledged that such 
approaches were enticing in that they would relieve the 
manufacturer of the unlimited liability for "long-tail" products. 
These firms, however, have a strong sense of individual 
responsibility, and their reservations concerning equity for the 
injured party who is entitled to seek compensation, extreme 
technical difficulty associated with setting useful lives or 
statutory limitation periods, possible impediments to free 
enterprise, and practical difficulties of covering the countless 
items already in circulation, tended to override the initial 
attraction of this type of remedy in their minds. 

Among the trade association surveys, on the other hand, there 
is evidence of strong support for statutes of limitations in all 
four surveys which presented remedies for membership evaluation. 

Modification of tort laws 

Second to standards among the selected firms, and 
overwhelmingly at the top of the trade association rankings of 
remedies, were proposals to modify the tort system. There is 
substantial agreement that the tort system should be modified to 
require that negligence of the manufacturer can be established 
only on the basis of state-of-the-art at the time the product was 
made. They also strongly support changes which would allow 
evidence of gross misuse, alteration of the machine or its safety 
devices by the user or his employee, and refusal to observe 
safety warnings, as defenses. 



IV-112 



A related, favored change was a modification of the 
attorney's fee system with many respondents preferring complete 
elimination of contingent fees. Almost as frequently recommended 
were proposals that the losers in court be required to pay 
attorney's fees and trial costs of the winner; some suggested 
that this should also somehow apply to claims settled out jof 
court. The latter suggestion was particularly strong among 
machine tool manufacturers who are spending large sums on 
defense of subrogation cases which are later dropped* 

There was also agreement that it is necessary to limit 
recoveries, particularly awards for pain and suffering, and 
strong sentiment for permitting evidence of other sources of 
recovery. Several of the selected firms also suggested that 
there should be no reimbursement of the worker's compensation 
carrier or the employer from the sum recovered in court, the 
award to be made to the injured person only. 

Role of Government 

Firm representatives were generally vague about the role of 
Government in any of the proposed remedies. This might be 
interpreted as a logical bias considering the individual 
responsibility and preventive orientation of this sample, and the 
firms' trade association activity. 

One representative of a medium-psize machine tool firm made 
this comment, which reflects the overall attitude regarding 
Government intervention: "The company prefers business control 
to Government control and Federal control of insurance to no 
insurance ." 

The most definitive statements came from three firms that 
oppose State Government involvement, as administrators or 



IV-113 



regulators of no-fault insurance, specifically,, in two of the 
cases . 

A Government role in product regulation by standard setting 
occasioned nine comments, split five in favor and four against. 
Those against were of the opinion that voluntary standards are 
most effective and more stringent, or that standards were not 
having a significant impact on workplace and product safety and 
compliance with standards was not allowable as a defense in 
liability cases. Those in favor wanted to see standards 
strengthened and monitored so that they would have workplace, and 
legal impact. One additional firm recommended that Government 
certify products for compliance and thereby relieve the 
manufacturer of subsequent liability. 

Of the seven firms that supported the remedy involving a 
guarantee of product liability insurance upon compliance with 
standards, three pointed out that Government, probably at the 
Federal level, would have to administer the program. This was 
not the preferred mechanism, but they indicated that trade 
associations which had attemmpted to accomplish a similar effect 
through captive insurance mechanisms were running afoul of 
antitrust laws because of the standard setting activity. 

There seemed to be some recognition of the desirability of a 
Federal reinsurance program, but this was always accompanied by 
caveats regarding the inability of even the Federal Government to 
afford large unlimited awards. It was further pointed out that 
if the current compensation activity related to workplace injury 
is controlled, the economic impact will only shift to another 
area, as it had shifted from medical malpractice in the past. 

The firms which were sufficiently sophisticated to know that 
the tort law had changed in 1965 were unanimous in ascribing much 



IV-114 



of the recent difficulty to the altered provisions. There was an 
underlying expectation that the Federal Government would be 
significantly involved, if not assuming leadership, in the 
modification of the tort system to alleviate some of these 
difficulties . 

Other suggestions for Government action from the selected 
firms were: two related to public education programs, one for 
technical assistance to employees on safety, and one proposal for 
establishment of a professional/technical hearing board to render 
informed judgments on the safety of medical devices in place of 
lay juries. 

Several of the trade association surveys were prefaced with 
strong appeals for immediate government intervention, generally 
suggestive of legislative activity in the tort area, but also 
related to insurance guarantees or financing, standard setting or 
guidelines, and statutes of limitations. 



IV-115 



CHAPTER V— A FRAMEWORK FOR ANALYSIS 
OF PROPOSED REMEDIES 

OVERVIEW 

In this chapter we shall briefly address selected approaches 
to controlling the present product liability problems of 
industry. We are concerned about the relative impact that each 
of the proposed approaches has on the ability of manufacturers, 
employers, workers and consumers, courts and regulatory agencies 
of both State and Federal Governments to control product accident 
risks and attendant economic and social costs. Because of the 
relative complexity of the problem, there are clearly no simple 
solutions that can singly address all contributing factors. 
Rather, there are several mixes of solutions, given the existing 
structure of industry and trade, tort law and insurance and 
accident compensation systems, that will be able to abate the 
more significant and controllable elements of product liability. 
These solutions will have varying impacts on different product 
manufacturers, as well as on the legal and institutional 
arrangements for handling the assessment of fault and the 
equitable apportionment of the costs of accidents. 

This chapter will present a discussion of the remedy 
proposals, related issues for analysis, and criteria for 
evaluation. In addition, the approach taken to evaluate 
potential remedies will be summarized and an indication will be 
provided of how the results of the assessment relate to the 
overall scope of the Product Liability Task Force research 
agenda. The suggested remedy proposals and criteria for 
assessment are based, in large measure, on those developed by the 
Task Force and assigned to the Industry Study for examination. 
These candidate remedies have been functionally arranged to fit 
into several remedy systems. 



V-l 



The Task Force proposals have been recast into an evaluation 
matrix relating remedies, underlying issues, impact groups, 
method of assessment, and contribution to remedy issues. This 
format will serve as a basis for guiding the subseauent analysis, 
presented in chapter VI, concerning the costs, benefits, 
feasibility and implementation requirements of the Industry Study 
product liability remedy proposals. 

CANDIDATE REMEDIES 

Introduction 

The Task Force has considered a wide range of proposals for 
dealing with current product liability difficulties. These 
remedies include possible reforms of tort and insurance law, 
adoption of replacement forms of accident compensation, reform of 
workers compensation, and development of active preventive 
programs by manufacturers, with concomitant expansion of the 
safety standards development and enforcement capabilities of 
government. From the full range of these candidate remedies, the 
Task Force and Industry Study have selected a limited number for 
fuller investigation and assessment because of their potentially 
significant impact. 

Candidate Remedies Selected for Analysis 

Candidate remedies selected for analysis and assigned for 
detailed assessment to the Industry Study are the following: 

• Making workers compensation the sole source of recovery 
for workplace accidents involving the use or misuse of 
products . 



V-2 



• Establishment of safety certification of products by 
manufacturing firms, with active monitoring by 
government regulatory agencies, such as the Occupational 
Safety and Health Administration (OSHA) and the Consumer 
Product Safety Commission (CPSC). 

• Development of mandatory product liability prevention 
programs by industry. 

• Financial and insurance arrangements to limit liability. 

These remedies lend themselves to the conduct of impact analysis 
within the range of Industry Study resources. That is, they can 
be quantitatively assessed through such means as the results of 
the product liability telephone and trade association surveys, 
analysis of Federal safety regulatory agency experience and 
capabilities, and actuarial analysis of proposed workers 
compensation benefit changes. Further, these remedies offer the 
potential of immediate relief through existing legal and 
institutional means and, in many instances, can be accomplished 
by the firms themselves with technical assistance provided by 
insurers, independent specialists, and governmental accident 
reporting and safety regulatory agencies. 

A number of other candidate remedies were also considered but 
deferred from detailed analysis for a number of reasons. These 
candidates were: 

• Statute of limitations and useful life concepts. 

• Use of contractual means and/or compulsory arbitration 
as methods of limiting the liability of product caused 
injuries and property damage. 



The assumptions underlying the analysis of these remedies, and 
the conclusions and opinions derived therefrom, are those of the 
contractor and do not necessarily represent the conclusions of 
the Interagency Task Force on Product Liability. 

V-3 



• Development of no^fault compensation systems for product 
accidents and injuries. 

There is not sufficient information available to 
comprehensively determine the extent of claims involving older 
products that would be curtailed given several possible 
definitions for a statute of limitations . The limited evidence 
provided through trade association surveys completed by capital 
goods manufacturers indicates that a considerable proportion of 
current claims involving older products would be eliminated 
through the adoption of such a means. However, the results were 
restricted to a limited number of responses and products in the 
machine tool industry. While the definition of useful product 
life holds promise, there appear to be only a limited set of 
neutral sources for defining industrial product lives, such as 
depreciation and class life tables developed by the Internal 
Revenue Service (IRS). Moreover, research on definition of 
consumer product useful lives is only now beginning under the 
sponsorship of the National Science Foundation (NSF). Although, 
it was impractical to assess the impact of these statutory 
approaches on products liability in this study, the need for 
further analyses is recognized. 

The use of hold - harmless and mandatory arbitration clauses in 
sales agreements did not appear, from discussions with 
manufacturers contacted by the Industry Study, to offer 
significant potential in either curtailing claims or providing 
adequate defenses in the instance of lawsuits brought on strict 
liability grounds. In view of these prelimary findings no effort 
was directed to the assessment of these candidates. 

While no-fault product accident compensation systems hold 
considerable interest among manufacturers, both insufficient time 
and data prevented the Industry Study from conducting a complete 



V-4 



impact and feasibility assessment of this candidate remedy. 
However, the no-fault product accident compensation system remedy 
has been given special attention in chapter VII of this report in 
the context of a research agenda and development of topics for 
further policy analysis and evaluation. 

DESCRIPTION OF REMEDIES FOR EVALUATION 

Workers Compensation as an Exclusive Source of Recovery 

for Workplace Accidents 

This major industry study remedy has two components: the 
elimination of third-party suits under workers compensation for 
receipt of extra damages; and the adjustment of basic benefit 
standards for State workers compensation systems. The primary 
issues are the impact on industrial products manufacturers of 
possible reductions in litigation and general damage awards made 
by the courts, and the prerequisite increases in both benefit and 
employer insurance rates for workers compensation. This remedy 
has considerable potential as evidenced by the discussion in 
Chapter IV for securing relief within the next few years for 

industrial products manufacturers with direct exposure problems 

2 

stemming from use or misuse within the workplace. 

Safety Certification 

A related remedy to the workers compensation sole source of 
recovery candidate, cited above, is the development of safety 
certification for both industrial and consumer products. 
Certification of the safety worthiness of products could be 
undertaken through a variety of means by major regulatory 
agencies such as the Occupational Safety and Health 
Administration (OSHA) and the Consumer Product Safety Commission 
(CPSC). These may include self-certification by the 



2 
See footnote 1, page V-3 



V-5 



manufacturer, coupled with periodic monitoring by regulatory 
agencies, and/or physical inspection of production* and of durable 
products before subsequent sale. At issue are the questions of 
availability and adequacy of safety standards from mandatory and 
voluntary agencies, enforcement capabilities and resources of 
regulatory agencies, impacts on manufacturer quality assurance 
and safety programs, costs and benefits of safety certification, 
and remaining legal barriers to its adoption as a possible 
defense in product liability actions. 

Mandatory Product Liability Prevention 

Paralleling the consideration of safety certification of 
products is the potential for making mandatory the adoption of 
product liability prevention programs by manufacturers and the 
provision of services by insuring organizations. Based on the 
analysis presented in chapter IV, the primary issues are: the 
development of standards for prescribing basic prevention program 
elements; assessment of the greatest impact of and need for such 
services among firms in different product exposure and sales 
groups; and development of a possible mechanism for 
redistributing and financing the provision of such services to 
meet the specific needs of small product manufacturers. Of some 
interest is the possibility of linking the adoption of preventive 
programs to possible standby or reinsurance facilities that might 
be created by either State or Federal governments. 



Financial and Insurance Arrangements to Limit Liability 

This remedy is principally concerned with the means available 
to firms to obtain insurance against product risks. Major 
suggestions include the formation of captive or self-r.owned 
insurance companies, formation of Joint Underwriting Associations 



V-6 



(JUAs), making product liability insurance coverage mandatory, 
and facilitating use of contingent loss reserves to retain and 
self-insure against the risks of product liability. Primary 
issues are the extent of requirements and incentives among 
product manufacturers for adopting one or more of these 
alternatives, and the financial burden placed on firms not 
presently securing insurance coverage of product risks. 

CRITERIA FOR EVALUATING PROPOSED REMEDIES 

Introduction 

The Task Force has formulated a basic set of considerations 
against which specific candidate remedies are to be evaluated. 
The six considerations discussed here represent several key 
dimensions for appraising the effectiveness and/or efficiency of 
specific candidate remedies. Where applicable, the Industry 
Study has expanded these remedy selection criteria through 
development of supporting subcriteria with specific relevance for 
Choosing potential solutions to manufacturing product liability 
problems. The major consideration that guided the assessment of 
candidate remedies are: 

. • Remedies should not unreasonably deprive injured parties 
of reasonable compensation for their product-related 
injuries . 

• Remedies should expedite the reparations process from 
the time of injury to the time the claim is paid. 

• Remedies should minimize the sum of accident costs, 
prevention costs and transaction costs. 



V-7 



• Remedies should place the incentive for risk prevention 
on the party or parties who are best able, to accomplish 
that goal . 

• Remedies should ensure the availability of affordable 
products liability insurance with adequate coverage to 
manufacturers that engage in reasonably safe design and 
quality control practices. 

• Remedies should be comparatively specific and concrete 
in nature and format. 

Remedies Should Not Unreasonably Deprive Injured 

Parties of Reasonable Compensation for Their 

Product-Related Injuries 

This consideration raises the question of what constitutes 
"unreasonable deprivation." This criterion also implies that 
uncertainty of compensation is not acceptable and that the 
reparation be adequate to compensate for the loss sustained. 

Remedies Should Expedite the Reparation Process 

Significant aspects of this consideration are the certainty 
of compensation for the damages sustained within a time that is 
consistent with the injured party's resources and within a time 
that is consistent with the prospective defendant's ability to 
respond effectively. This criterion tends to favor remedies that 
avoid litigation as a reparations system, and remedies that 
reduce delay between the injury event and the time a claim is 
brought or litigation initiated. This criterion also requires 
that the performance of claims handling and settlement be made a 
subject for continuing evaluation. This criterion favors no- 
fault over fault-based negligence approaches, and would thus 



V-8 



place greater reliance for compensation on no-fault systems, 
e.g., workers compensation, or a no-fault reform of the products 
liability system, and first party insurance coverages, such as 
accident and health as primary sources of compensation. 

Remedies Should Minimize the Sum of Accident Costs, 
Prevention Costs and Transaction Costs 

This is an important consideration. It contains a number of 
significant implications and from it we can also derive some more 
explicit subcriteria for evaluating proposed remedies. Our first 
observation is that this consideration recognizes that some 
accidents cost more to avoid than the accident itself. This is 
entirely reasonable, and this realization indicates the need for 
a reparations system to compensate those who are unfortunate 
enough to be the victim of that kind of accident. The second 
point is that the cost of settling claims is an important part of 
total accident costs. Total accident costs are the sum of 
economic losses suffered by accident victims plus all settlement 
costs incurred by all involved parties. The third point is that 
the expected sum of prevention costs, accident costs, and 
transaction costs should be calculable with sufficient certainty 
to enter into the calculation of the costs of doing business, 
insuring against losses, and the prices of products. Let us 
examine each of these components in turn. 

Many, but by no means all, of the economic losses suffered by 
victims arise at the time of the accident. For instance, while 
the physical injury arises at the time of the accident, wage 
losses continue until the person is back at work. Techniques 
exist, such as vocational rehabilitation, for helping people get 
back to work sooner rather than later, and some compensation 
systems are much better suited to minimizing losses than others. 
Thus, as a subsidiary criterion, we note that remedies which take 



V-9 



action to recognize and reduce controllable losses are preferred 
to remedies which do not. Another aspect of accident costs 
relates to compensation for the acci-dent itself; multiple 
payments or reimbursements for the same expenses should be 
avoided. This subsidiary criterion minimizes total cost 
consistent with other criteria relating to soeedy and just 
compensation. It infers that overlaps between collateral sources 
and products liability need to be eliminated. When deciding 
which system should have responsibility for compensating 
accidents that fall under more than one system, the most 
efficient system is preferred, other things being equal. 

Turning our attention to claims-settlement costs, similar 
criteria emerge. Namely, minimizing total accident costs infers 
that all settlement costs should also be minimized. Hence, 
remedies which reduce all settlement costs including subrogation 
costs are preferred to those which do not. Thus, for instance, 
remedies which make accidents fully compensable from one system 
rather than a multiplicity of systems and will generally reduce 
total claims costs. This criterion also indicates that 
subrogation expenses should be clearly recognized as a cost. 

The subcriteria that the expected sum of the costs of 
prevention, accidents, and settlement costs should be estimable 
with sufficient accuracy to be reflected in the price of the 
product, suggests that the cost of accidents should not be left 
to an uncertain future method of valuation such as a jury award. 
This subcriterion also indicates that remedies which are likely 
to lead to protracted litigation with concomitant uncertainty 
about transaction costs, will not be efficient. 



V-10 



Remedies Should Place the Incentive for Risk 
Prevention on the Party or Parties Who are 
Best Able to Accomplish That Goal 

This consideration implies that each party has a 
responsibility to prevent risks that is commensurate with its 
control over the risk, and that the remedy should not distort 
these incentives in the wrong direction. It is apparent that 
this criterion presupposes knowledge of the hazard, knowledge of 
hazardous conditions, and proficiency in safe operation. The 
expectation, with certainty, of bearing; all or a share of the 
foreseeable loss from an accident, is assumed to be an incentive 
for implementation of risk prevention techniques. 

Remedies Should Increase the Availability of "Affordable" 
Products Liability Insurance 

This consideration is clearly significant from the standpoint 
of industry and, ultimately, for the economy as a whole. There 
are several subsidiary criteria which deserve consideration in 
this context below. 

How does this remedy affect what functions are to be performed by 
products liability insurance? 

There are several different functions that may or may not be 
performed under an insurance policy that are essential to 
operation of a business that is exposed to the risk of liability. 
First, to assure the survival of the company, it needs protection 
against a catastrophic risk, i.e., that single event that it 
cannot afford to bear. The lower limit of that "excess" 
protection varies greatly among firms, depending on their 
financial position and the magnitude of that potential single 
loss occasioned by their product. Second is the function of 



V-ll 



receiving, processing, investigating, and acting on claims 
presented against the firm; acting on claims includes the 
decision whether to settle or defend. In either case, resources 
are reauired to implement that decision, and they must be managed 
well. These resources include financial reserves against the 
possibility of a loss and management of defense or adjustment 
services. These activities interact with the product liability 
prevention system of the firm; to the degree that this 
interaction is delayed, attenuated or absent, the effectiveness 
of the prevention program is impaired. 

How does the remedy affect the cost of performing these functions 
including litigation? 

The factors to be considered here include the cost relative 
to the hazardousness of the firm's products and its assets, cash 
flow, and tax aspects. 

How does the remedy affect the capacity to provide liability 
insurance coverage? 

This issue is primarily a matter for the Insurance Study 
contractor; in the context of the Industry Study, the relevant 
consideration is the division of risk between the firm and the 
insurance company, if any. To the decree that the firms choose 
or are required to retain a portion of the risk, they share the 
availability of insurance. And to the degree that the same risk, 
i.e., probable event, is covered by several policies of different 
firms, scarce coverage capacity is wasted; this applies to 
consumer goods and industrial goods. In the absence of 
enforceable agreements among all parties as to who insures 
against what risk and who is saved harmless, or how it is shared, 
they all demand protection—and they all Day, whether they are 
manufacturers, distributors, employers, processors, etc. 



V-12 



How does the remedy affect the predictability of the loss? 

This issue has been raised in connection with the criterion 
of minimizing the total cost of accident, accident Drevention, 
and transaction costs. It applies equally here; the more 
predictable the loss, the more accurate the match between 
exDOSure and coverage. 

How efficiently does this remedy allocate the available coverage 
over all risks? 

This consideration applies to both the structuring of 
protection for the individual firm and the structuring; of 
protection for all risks within the insurance system as a whole. 

PRINCIPAL REMEDIES FOR INDUSTRY STUDY IMPACT 
ANALYSIS.— EVALUATION MATRIX 

Tables V-1 to V-4, Dresent evaluation matrices of four 
principal Industry Study remedies examined in the following 
chapter. They summarize each candidate remedy in terms of 
underlying issues, impact groups, methods of assessment and 
contribution to overall Task Force remedv issues analysis. 



3 
See footnote 1 , page V-3 



V-13 



J£ 

co to 

ID 0> 

E-i 3 

(0 

o in 

4J M 

c t*. 

O TJ 

■ 1-4 <p 

■u e 

3 <U 

X) OS 
•rl 

Vj 0> 

4J CJ 

c u 

o o 

CJ Ck 



I 

c 

IT fl> 

c a 

■h e 
x: co o 

CO 4-> CJ 



3 10 

(0 VJ 

0) 

4-> l-l 

Vj O 

(0 S 

a 



c 

•U Vj O 

a-H c m 

E -C 3 CO 
M 4J 



•Q 
>■ •» 

CO -U 01 

<P C u 

II) O 3 

co wi co 

OKC 
H 3-H 

o 

o tj -v 

a> 'h 

o> o x> 
■u co id 

XjO-h 
Cd nj i-t 



X> *» 
C CJ 

ID <o 

a 

*j E 



(V J- 1 

c co 

0J O 

ffi u 



4J 

e "* 

Vj <M 

cu 

UJ C 

•<-i o> 

C jQ 

D 
01 

CTrH 

C XI 
•r« «J • 
£ 4-> CO 

CO -r-i <0 
■H 3 vj 

rH CT (0 

XI 0) TJ 
CD C 

*J TJ ID 
CO C +■» 

01 CO CO 



> 

•J 

CO 



> 






X) 




UH 


d> 




o 


E 






0! 




X) 


(K 




o 




x 


t>~ 




4-> 


Vj 


> 


0) 


ai 


x> 


X. 


> 


01 




o 


E 




CJ 


0' 




0) 


« 




tx 


y-i 




U-| 


is 


CO 


o 


a 


t-\ 


3 


01 


Oi 


O 


u 


K 


vj 


Vj 




U 


D 


Oi 




O 


— I 


4J 


1/3 


o 


O 


CO 


(0 


0> 


1 


a 


> 


c 


E 


•M 


c 


M 


CO 


■H 




3 


J-l 




.-J 


<0 




CJ 


10 




X 


c 




CO 


0> 




i a 




• E 


co 


• o 


at 


1-1 


CJ 


3 



C 



01 

■a 

c 

D 



I 

o 

CO -H 

CO 0) T3 
>■ CO 10 
0> <D "H 
> U Vj 
Vj 3 

3 >--o 
CO -U 

Vj T) 

<*H (C 0> 

O D -U 

O 

co xi <u 

■H hi rH •» 

CO -H 01 CO 

>x co c 

H 4J O 

(D C -H 

CH-H4J 

<: o 



co to >- 

4J C 4J 

CJ <D Vj 
3 <D 

t: co ex 

O Vj 

Vj 0) XI 

0- vj i-i 

3 -H 

h tor 
c -u 

rl CO 

CT c 
-co 



(0 



3 CO rH J-» 
T3 Vj ->H O 

M E 



I 

CD 
CT T3 

•rl VJ 

4.) -rl 
•h x: 



o o 
u 

J-l <4-l 

c 

o> c 

*J O 

X •H 

CjJ J-> 



I 



u 0> -^ 

3 CO J-> CO 

co >- c co 

C 0)-H*J 
.rl > 

Vj >-i-h 

<J-I 3 XI ID 

O CO 4-> 

T> C 

co co oi 0) 
•rl 1J Jj g 
co oi cj *J 

>-•<-( 3 u 
r-l Vj X) <0 
(0 Vj C D 
C <0 O 0) 
< O O XI 



CO 
Vj 
0> 

* •» 

VJ C 

o o 

4J 

C <D 

O CO 

c 

0) 0) 

u a 

vj E 

O O 

<u CJ 



co 
j-> 
o 

3 
'D 
O 



» -P 

<D -i-l 
CO r-l 
C -n 

Oi XI 

a id 
e-h 

O r-t 

o 
XI co 

CO C Vj 

Vj CD 0) 

Oi Vj 

* C 3 

VJ O W 

O -n C 

5 *J-n 



I E 

ID O I 

D~ Vj ID 

O U-l CO 

Vj C 

jO >. 01 

3 4J O 



E 
O E 

CO 

CO rH 
O 



O 
10 

0' 

C ■* c 
O Vj O 

•rl o -n 

4J J4J 



V) 
•H 

CO i-H CO 
>-rH CO 
rH -H O 
ID JO rH 

c 

10 • CJ 

a W 

rH »U 

urz 

•rl • 

VJ W » 

ID • <* 

3 3 O 

J_l V£) 

(J <W 1/1 
< O rH 



ID • 

u <: 
u 

VJ u 

Du 

<4H 

•o 

0) c 
U ID 

c 
0) « 

•rH flj 
VJ -H 

0) c 

a vj 
x o 

01 "*H 



I 0> 

c -u 

•r4 IQ 

Jj 

- ' w 

CD CO • 

VJ Vj <D CO 

0> Ot C 0> 



O Vj 



ID VJ 

3 



rH O CO -U 



a s 

E 



CO ID 

0) rH 



01 'D Vj CO 



0) 
VJ 

r-i 3 



cr-H 
c tr> 
o ai 



< T"l CJ rH 



X) 

0) "D 

co c 

10 10 

o> 

VJ co 

cj -u 

C CO 

•n O 

(J 

U-l 

o 



CD <0 

U Vj Vj 

c o <u 

ID U-j J£ 

VJ VJ 

3 CO O 

w j-> 3 

c co 

•HOC 



■K 0) E 



0> !+H 

c c 

10 0> 
« JQ 



n 4J 
ID 
_ CO CO 
>• 3 0) C 
O -H CT 01 

rH e c a 

a oi co e 

E Vj SZ O 

c a o o 



CO 

>- 

CO 

c 
< 

Vj 
O 



>• 

X> 
01 

E 
0> 
(X 



I «H 

c o 
o 

■rH 01 
4J CJ 

CO Vj 

0} 3 

C O 

0> CO 

a 

E <u 
o > >i 

O -rl VJ 

co a> 
co 3 > 

VJ rH O 

O) CJ CJ 
* X 0) 

Vj w rx 

o 



V-14 





J* 








•o 






T3 




10 








>• CD 






C 




TO 


(0 


«M 1 




4J 4J 






TO O 1 




Eh 


CD 

3 


O CD 




1 0> TO 

e >,m-i ,h 






4J a 
^ o 




o 


(0 


4J 4J CD 




•■-1 4J TO 0) 






4J CO i-t ■O 




■u 


10 
M 


•h ai 4-1 co 




01 W vi 
U-l U-l 






CD Or TO TO 
UJ CO XT 




c 




■HI0 4J (0 




O TO *D 'D 






TO C CD Vl 




o 


>i 


.a co co s 




CO C C 






CO 0) .H o 




■>-4 


-o 


ia co 




>■ TO TO 






U-l CM 




4-1 


(D 


CD *■••-< 




4J CT 






U-i CD U 




3 


e 


Hun E 




•h c co co 






O "O ••-• CO 




.Q 


0) 


TO VI tJ 




H'H XJ'O 


w 




CO t3 




•H 


a 


U O Vi T3 




■H4J H W 


0) 




>T3 TO Vi 




u 




•HW 10 c 




£l C TO TO 


CO 




4J 01 £2 TO 




■U 


a> 


c c -d to 


01 


•H Oi *U T> 


c 




■H 4J TJ • 




C 


o 


j: (D c 


CO 


co e c c 


01 




.-1 TO 4J C C 




o 


Vj 


O TO 4-> 


c 


TO Oi TO TO 


U-l 




■H H CI 10 O 




u 


o 


<D O 4J Vl 


0> 


QJ f-l 4J 4J 


0) 




X! 01 OI 4-1 -i-l 






fa 


E-i 4J CO TO U-l 


fa O- CO CO TT 




< VI E CO 4-1 






4J 


>. 4-> 




1 


4J 










c 


VI C 




CD 


o 










a> 


TO 1 CD 




O > 3 










e 


i 4J a e 




VI VI VI 


-D 




1 






CO 


3 C O CD 




«w o o o 


O 




3 


> 




(0 


O-SH O 




O U-l U-l 4-1 


Vl 




CT CO 


TJ 




CD 


0> r-H CD Vl 




C TO 


a 




0> E 


CD 




(0 


vi o > o 




CO 0) CO f-l 






Vi TO 


e 




to 


> a> <v< 




•H E 3 


"D 




VI • 


01 




< 


14-1 T3 C 




CO 0) TO CT 


c 




U-l tT'-~ 


cc 






O "D 0) 




> > Vi 0) 


TO 




O O CD 






uj 


c co 


•* 


^-i -h tr vi 






Vl > 


e 




o 


CO TO "D T3 


CO 


TO 4J O 


CO 




to a O 


o 






•^ Vi C 


E 


C TO Vl r-l 


CD 




■M & 


•.h 




TJ 


CO >- TO TO 


TO 


to c a TO 


•rH 




10 5n TO 


4J 




o 


>~ Vi >D 


Vi 


Vl Vi 


O 


(0 


>i VI 


<c 




-C 


<-< O C 4J 


CT 


4-> 0) 4-1 0) 


c 


E 


H 0« 


o 




4J 


TO 4-1 TO C 


O 


CO 4J C TD- 


CD 


V 


TO 4J CD 


•»H 




0) 


C TO 4-> CD 


Vl 


Oh 111 D 


D- 


-i-i 


C TO CO 


4J 




z 


"Ch Hi E 


a 


U TO E U-l 


TO 


<M 


< r-l 


















Li 


















4) 






* 




- 








U 






co 




co 

E - 1 






• 

vi co 


>• 




(0 


u E-" co 




Vi H 3 




*. 


cd a 


4J 




a 


•HO "O 




•h o tr •» 

U-l Q CD CO 




E-i£ 3 


<u 




3 


yj D t; vi 






O 


4J o 


IM 




O 


C TO 




vi a 




O 


O VI 


TO 




VI 


4J •■ Q "O 




4J ► 3 




*■ 


CT 


CO 




a 


OCJ c 

3 w o to 




UUMO 
3 CO CD Vi 




tn 


M CO 


X 




j-> 


T3 a. to 4J 




»o fa s: xr 




a tn <o 


•#H 




o 


o u Z CO 


•*. 


O O 4J 




OZM 


Vl 




to 


Vl < 


CO 


vi O >i 






< TO 


4J 




a 


a * vi 


a 


a * vi 






•o 


TO 




e 


«C » CD 


3 


< - O 




<c 


- c 


T. 




M 


i-h a: < jc 


o 


Hltf4J 




X < TO 








Hwa4J 


VI 


.-1 tO D TO 




to 


a 4J 


C 
O 






< O fa O 


CT 


< O fa «H 




O fa W 


-«-i 
4J 


















TO 






>* 1 




•» 








D 






Vi C 1 




1 CO 






I • 


f-H 




10 


O TO CD 




1 co c E 






vi co 


TO 




o> 


4-» 4-> O 




0) 4J CD TO 






CD CD 


> 




3 


TO CO VI 




Vi O Vl 






O -H 


fa 




co 


>o o >i 




•H TO Oi XT 




U-l 


>i >o 


1 




CO 


C >U-I 4-» 




3 a > o 




O 


•VO O 


1 




M 


TO Vi C CD 




D E "H Vi 






Oi CXI 


• 






£ TO CD U-l 




CD -H 4-> 0- 




c u-i <c 


CN 




CT 


4-> TO 


• * 


vi TO 




o 


TO C 


1 




c 


U-l C Vi CO 


CO 


t3 C 4J 




■>-> 


(0 CO O 


> 




•l-f 


O 3 O 


T3 


0) C Vi c 




4-1 


T3 •»* 






> 


i-i U-l U-l 


VI 


O TO 01 01 




TO ft Vi 4J 


w 




l-l 


4-> O O 


TO 


VI J-i £ 




O 


TO TO TO 


J 




VI 


C > CO 


Tl 


3 CO i-h Oi 




•i-i 


U -O O 


m 




CD 


CD »0 4J 


C 


O 4-i TO CJ 




i-l 


4JC-H 


<: 




•D 


4JH3 u C 


TO 


CO C Vl 







3 TO UJ 


H 




C 


X C TO Oi 


4J 


Oi CD "-I O 




a 


CD 4J -r* 






s 


W TO T3 E 


CO 


a E o w-i 




< 


C (0 4J 



CO c 

-4 O 

CO -H 

>- 4J 

•-< TO 

TO V 

C "4 



CD 

E 
CD 
K 



4J 
H 
CD 
O 



TO 
CO 



V-15 













<D 






>~ 


• 














M 




>- -U 






u >. •» 


Vl Vl 


E 












to 


to 


4J 


CO 






O CD -V CO 


O 3 


u 












<d 


4) 


•t-t 


CD 






4J CJ CD CD 


144 CO 


■H 












E-< 


3 


rH 


*■ co 






ID Vi W-i CO 


C »44 














to 


•H 


>i 3 






rH O ID C 


fti -H 














o 


(0 


X) 


4-> CO 






3 >44 (0 CD 


iJ CD 


4-» 












4-> 


n 


•D 


CD -H 






IT C >vt 

Q) CD » CD 


a. vi 


o 

3 












c 


>i 


E 


(0 






Vi 4-> 73 


<44 VI 


73 












O 73 


vi 


CO » 






O Vi 


o o 


o 












•i-4 


cd 


•<H 


4-> 






<44 4J ID CD 


\ 


u 












4J 


e 


VM 


» v« 






O CO 


CD 73 


a 












3 


cd 




4J ID 


• » 




CO »M 3 


4J C 














£ 


« 


4-1 


a 


a> 




>■ CD O CO 


ID ID "44 












•i-l 




o 


O CD 


tn 




4J -l-l -l-l 


o 


o 












u 


CD 


3 


73 X 


c 




•h U 11 E 


•H CO 




to 










4-> 


CJ 


73 


(0 4-> 


<u 




H c -u 


73 - 


CD ^ 










C 


l-i 


O 




i*j 




•H CD <D 73 


CD < 


o 


CO 










o 


O 


Vi 


O t-i 


a> 




£> cr-v 1 c 


u o 


c 


•H 










u 


Cb 


CU 


4J O 73 




ft ID CO ID 


a. «-3 


(D 


VI 












•u 










* 


to 








CD 








c 










Vl 


4J 








O 








0) 




>- 






ID 1 


i-H 








c 








e 


1 


CD 






i 4J a 


1 3 






TJ 


ID 








CO 


CD 


> 






3 c o 


CD CO 






144 C 


4J 








CO 


rH 


CD Vl 






tr 3h 


rH CD 






O ID 


to 








CD 


CD 


73 3 






CD i-H CD •*• 


CD VI 








•H 








CO 


4J 


ID CO 






Vl O > CO 


4J 






CO Cm 


to 








cc 




VI 






> CD E 


>- 






•h J 


to 








< 


l*-l 

o 


4J C 

o 






«44 »D ID 
O T vi 


144 CD 
O > 






CO ft- 


ID 








U-l 




73 -H 






c to o- 


Vi 






rH >1 


rH •« 


K 






o 


CO 


C 4J 


•- 




CO ID *D O 


CO 3 






ID Vl 


ID 10 


4J 








•H 


ID ID 


to 




•H n V4 


•H CO 






C O 


O E 


O 






73 


CO 


•H 


4-> 




CO >s ID 11 


CO 






ID 4J 


•H ID 


D 


>. 




O 


>- 


«J OH 




>■ wc 


>, CD 






ID 


C Vl 


73 


73 




£ 


l-l 


c o 


3 




.-I O C -v 


rH C 






4J 73 x: CT 


O 


o> 




4-> 


id 


O CO 


W 




ID 4J ID C 


ID O 






10 C 


CJ O 


u 


e 




cd 


c 


£. CO 


CD 




C ID 4J CD 


c sz 






O ID 


CD Vl 


a. 


<u 

OS 




je 


< 


a id 


Vl 




< r-K CO £ 


< 0. 






U E 


4-1 a 


Vi 




























o 


to 


























<*-i 










i 








k 






CO CJTJ 




X 


u 








4J X 






1 


to 






Vl • c 




-H 


Cr 




(0 




U CD 


•* 




l-i c 


E 






CD IS ID 




vi 


O 




a 




CD 


10 




CO 1 -rt 


Vi 




73 


Vl 




4-> 


u 




3 


CO 


K 4J 


E 




z c 


•-I >. CO 


C 


3 CDU 




m 


tx, 




O 


4J 


■H C 


CD 




«C ID - 


<*-! i-H 


4J 


<D 


10 4J CO 




X. 






Vj 


o 


73 CD 


i— I 




4J CO 


rH 


o 




C ID 04 






c 




O 


3 


tT.Q 




► C0 CD 


4-1 ID 


3 


• 


H4J CJ 




c 


o 






73 


£ C 


O 




O -H 


O -H 


73 


O 


to 




o 


•H 




4J 


o 


4J-H 


u 




in u-o 


3 O 


o 


• 


>. 




•H 


4-> 




V 


VI 


•■-I 4J 


a 




a cd o 


73 CD 


Vi 


S. 


4J73 co 




4J 


c 




Q 


a 


» c 






U £ J3 •» 


o aa 




•H C CD 




« 


<D 




a 




o 


CD 




4J tO 


Vl 10 




» 


rH ID *H 




s 


> 




e 


rH 


CO u 


VI 




- O W Vl 


D CDH 


to 


•H CJ 




l-l 


01 




M 


r* 


e 


3 




< 77 CD 




rH 


E .0< C 


• 


<0 


u 






ID 


vi 73 


CO 




X "O Vi U 


.-1 4J 


<D 


Vf 


ID X CD 


6-1 


> 


ft, 






e 


-H C 


o 




CO C ID 3 


rH 3 


E 


•H 


•h co tr 


£ 


w 








(A 


<t-i n 


a 




O ID "O CO 


< £1 


to 


U-l 


hO « 


I 


>i 


























1 


4J 1 


























* 


•H 


























on 


rt 






1 


•o 


















1 


••H 




n 


to 


1 c 








C 


»* 




1 


04 


> 


JD 




CD 


■H 


O 10 








o 


CO 




•H 4J 


•J 1 




ID 




3 


•D 


Vi 








•H 


CD 




> c 


Pi tO 


CO 


•H 




(0 




a co 


CT 


*» 


<t-l <4-l | 


to 


CJ 




O CD 


•H 


►J 


■J 




CO 


C 


CD 


c 


w 


OKOO 


••-1 C fl 




Vi 73 


73 0) 


m 






M 


•h 


1*4 U 


o 


E 


O vi 


> o 


> 




CVh 


c to 


rf 










O Vl 


E 


Vl 


C *4-l 4-1 Q. 


O -H 


Vi 




O 


ID <D 


6-| 






cr 


CO 


3 


ID 


•H 


o c 


VI 4J 


CD 




4J O 










c 


CD 


c o 




14-1 


•H 111 41 >1 


a c 


W 




C ID 


CTrH 








•h 


-H 


O CO 


CO 




4J <d E Vi 


CD 






CD 


C <D 








>* 


4-> 


•H CD 


CD 


4J 


ID Vi CD O 


VI > 


E 




E«« 


•H O 








i-t 


•»4 


4-> Vl 


O 


O 


O <D CJ 4J 


CD CD 


ID 




C O 


4J -r* 








u 


3 


3 


•H 


3 


•H 73 Vi ID CO 


Vl Vl 


VI 




Vl 


VI C CD 








CD 


tr.o e 


> 73 


HCOTJE 


3 a 


tr 




CD C 


O -C U 

a c 








T3 


CD 


•H ID 


VI 


O 


a. ID , *4 C ID 


to 


o 




> 








C 


c 


VI VI 


CD 


u 


a 4J C A3 Vi 


C <*-! 


Vi 




O-H 


CD CD ID 








D 


►H 


4J Ol CO 


a 


< to a e cr 


tH O 


a 




O CO 


Vl 4J 4-< 



to 

rH 
ID 

c 
< 

u 
o 



>1 

73 
CD 

E 
CD 
(X 



10 

E 
ID 
>• VI 
4J O 1 
•H O 
rH VI 
-H CL 

JQ 

ID C 
•H O 

rH -H 

4J 

CO C 



4J 
V 
3 
73 
O 
Vl 
Oh 



V-16 









«v 








c 
















>. 








o 






10 










rH 








C -rH 






ki 










4J 








O rH 4J | 






41 u-i 






JC 




c 








•h to re re 






■H O 


| UJ 4J 




TO 


W 


01 








4J jj a-^ 






kl 


UH O O 




IQ 


V 


1 kl 








re 4> "H rH 






ki c 


rH 3 




tH 3 


TO -rH kl 








O T3 O 






TO O 


4> TO T3 






to 


e »-i d 








•H 41 -r-l 4-1 






XI -H 


TO T3 O 




O 


TO 


ki xj o 








M-l 6u 4-1 O 






4J 


O ki 




4J 


M 


•rH TO 








•H VJ 3 


• 




h a^£ a 








UH -rH (0 








4J M TO *D 


TO 




TO O 


O 4J 




C 


>■ 


•o o> 








If) O O O 


4) 




•H ro 


4> cr 




O t> 


4J TO 








3 u-l kl 


TO 




U TO 


C E C 




•H 


<D 


O UH TO 








-r-i 4J Q 


TO 




C 


O -rH 




4J 


E 


3 O O 








> C 


O 




re ki 


•rH 41 4J 




3 


0) 


•O rH 








41 rH 41 kl 


rH 




c o 


4J 3 rv. 




jD (X 


O 4) 








kl 4J E 4> 






•H U-l 


re c X) to 




•H 




ki i-l Cf> 








11 C CHJ 


> 




U-l 


•rH TO -H 4) 




ki 


4> 


CXl C 








r ci k c 


4J 




4J 


CJ ki kl TO 




4J 


O 


re —* 








4-> ki 4) 3 -H 




4J TO 


O 3 4J 10 




c 


u 


<D D -n 








kl > 


rH 




re -h 


TO TO TO O 




o 


O 


ki re a 








TO 3 O C 


H 




x: y 


(0 C -rH rH 




U tu 


< o £ 








M O D"-»^ XI 




2 4> 


(0 -H rfj 


TO 
























4J 
























C 




4-1 


1 -P - 


















Oi 




c 


Oi c 4J 








41 


1 




* 




e 




4) 


U 4> o 








T> > 


4) 




•D >i 




0) 




e 


e re 








re 4> 


TO 




re 41 




D- 




TO 


>i to a 


c 


41 




M > i 






w > 




C 




(0 


* w e 


o 


ki 




4J kl £ rH 


O 




4J kl 




TO 




m 


> <U -H 




TO 




3 4) rH 


4J 


•» 


3 




u 




TO 


ki TO 


ki XI 




•o to re 




41 


•O TO 




u 




TO 


3 TO i-4 


o 






c x; e 


4i 


Cf 


C 




< 




< 


to re re 




CT 




re C 4J TO rH 


re 


re c 










•H 


T> 


c 


•* 


O-H 


XI 


u 







4> 




UH 


C TJ O 


^ 


•H 


>- 


4> -H J C 


re 


41 


41 -H 




U 




O 


c c c 


4J 


o 


rH 


C 4J o 


c 


> 


C 4J 


• 


c 






o re re 


a 


D- 


*i 


o re to 


3 


o 


re 


TO 


<0 




•a 


£ c 


o 




c 


X! -H 4J TO 




u 


x:-h 


4J 


u 




o 


O TO -H 


T> 


TO 


4> 


a O rH -H 


TO 




a 


rH 


D 




£ 


4> J-l U-l 


re 


e 


ki 


41 O 3 TO 


£ 


41 


41 


3 


to 




4J 


i— 1 rH 




vj 


ki 


rH TO TO re 


ki 


ki 


rH TO 


TO 


c 




<u 


a> 3 «w 


«j 


•H 


3 


4) to 4> x: 


•H 


3 


4) TO 


4) 


M 




£ 


H TO O 


•H 


U-l 


O 


En re ki tX<4-i 


U 


E-« re 


ki 


■o 
























c 
























re 






c 
o 


i 




(0 


1 

o 






^ 




rH 






(0 


4> 




kl 


kl >1 






TO 


1 "O 


<0 




TO 


e *J 


ki 




4> 


D ^4J 






e * 


c c 


•1-1 




o 


ki u 


10 


» 


ki 


<-H 0) 






ki cr 


•rH IQ 


u 




3 


•h re xi 


4) 


3 


rH H rH O 


• » 




•rH kl 


4-» 


c 




O 


UH 4J ct 




O 


TO 


rH &4-H C 


TO 




UH TO 


C 4) 


TO 




u 


w e 


o- 


•H 


C 


re X! re 


ki 




rH 


k. 


C 




O 


4J a> •>- 1 


c 


O 


•H 


E - re ki 


4) 




4J 


O 3 


•<-( 






O 4-1 


•H 


x: 




TO TO -H 3 


C 




ox; 


CO 


tt. 




4-1 


3 re rH 


o 


o 


>- 


E —< TO 


o 




3 4J 


k. O 






V 


•d ai re 


cr 




4J 


4) ki C 


•H 




-O-rH 


a 


ki 




(0 


O kl -rH 


B 


x: 


•H 


,H -H •«-H 


TO 




> 


X • 


o 




o 


ki o- O 




CTrH 


X> "*-i TO 


TO 




kl 


4-1 4> TO 


U-l 




e 


a c 


0> 


3 


•H 


•rH VI (1 


•H 




O 4) 


O 41 






M 


x: re 


TO 


O XI 


fj 4J d) 4-> 


E 




TO 


01 4-1 TO 


X 






rH 4J c 


o 


ki 


re 


•H o ki TO 


e 




rH O 


ki C TO 


•■-1 






rH -H -H 


x: x: 


•H 


rH 3 3 4J 


o 




rH x: 


•rH 41 O 


4J 






«£ J UH 


4-1 


4J 


rH 


W t3 TO TO 






< -w 


«0 «TrH 
























£ 






4) 








1 








• 

(0 


C 




TO 


4J O 


•» 






kl kl >4J 






I -o 


41 


O 




o> 


O C 


TO 






O 3X1 C 






a»iH 


•rH 




3 


3 re 


it 






«w to ai 






re c 


c 


•u 




TO 


UH t3 ki 


TO 






COTE 






» 


re 


(0 




TO 


O O 3 


•H 






n *h 4> c 









a 


D 




M 


kl TO 


kl 






4> 4>-H u 






ki 1 


E 


rH 






>-a c 








4> ki 4-> 41 






O uj 


O 


TO 




CP 


4J -H 


U-J 






C -H > 






UH rH 


O 


> 




C 


-H >. 


o 






HH O 






4> 




u 




••-I 


rH kl >< 








•M O ••-• cr 






4) TO 


4) 






>i 


•H O 4-> 


4> 






o o 






> 


O 


1 




rH 


£ 4J -i-l 


IT 






>- TO rH 






•rH kl 


c 


1 




kl 


•H A3 rH 


re 






4J xi u-i re 






4J O 


re 


• 




4> 


TO <K3 -H 


ki 






CO u 






c 


u 


^r 




•D 


TO C XI 


41 






4> C 4> 4) 






4) 4» 


3 


1 




C 


4» re re 


> 






4J TO O "D 






O > 


CO 


> 




a 


rH 


O 

u 






X 4J C 4> 

cj to re fcu 






C-rH 
M 4J 


c 

•rH 


u 
























u 
























m 
























«* 
























£-• 




(0. 
*4 

TO 

>■ 

rH 

re 

c 
< 

u 
O 

UH 

>1 

■o 

<D 

e 

0) 

<x 


inancial and insur- 
ance arrangements 
to limit liability 



















V-17 



CHAPTER VI— PRODUCTS LIABILITY— AN ASSESSMENT OF REMEDIES 

OVERVIEW AND SUMMARY 

Introduction 

The information presented in this chanter attempts to answer 
several basic questions about proposed remedies: 

First . what is the scope of the problem impacted by the 
proposed remedy, and how much of it, will the remedy solve? 

Second, how well does the remedy meet the tests of the 
considerations set forth in chapter V for ameliorating; the 
products liability problem? 

Third . what are the economic impacts of the proposals on 
the Nation as a whole, and more specifically, on target 
groups of manufacturers, employers, injured parties, and the 
liability insurance and legal systems? 

Fourth . what is the technical, legal, and economic 
feasibility of the remedy? 

Summary of Findings 

A variety of potential remedies to the current product 
liability problems of manufacturers were examined by the Industry 
Study. The range of possible solutions within the scope of 
analysis included: workers compensation as the exclusive source 
of recovery for injured workers; safety certification; product 
liability prevention programs; and financial means of limiting 
liability. 



The assumptions underlying the analyses of these remedies, and 
the conclusions and opinions derived therefrom, are those of the 
contractor and do not necessarily represent the conclusions of 
the Interagency Task Force on Product Liabiality. 

VI-1 



Workers Compensation as an exclusive source 

2 
of recovery for injured workers 



Impacts : 



• Elimination of third-party recovery for additional 
damages and subrogation liens from workers 
compensation would result in the deflection of more 
than $80 million annually from recoupment against 
product liability insurance lines. 

• Adoption of uniform equitable benefits under State 
workers compensation systems, to offset the loss of 
third-party recovery under tort law, would increase 
employer costs under workers compensation by a 
minimum of 22 to a maximumm of 71 percent above 
current levels, for an average cost increase of 
$269 to $90U per firm in estimated insurance 
premiums . 

Requirements for implementation: 

• Elimination of subrogation and third-party 
litigation under workers compensation could be 
accomplished through State statute within a time 
frame of 1-2 vears following initiation. 

• Raising State workers compensation benefit levels 
to uniform standards would reauire passage of a 
Federal standards law; e.g., the National Workers 
Compensation Standards Act of 1977 — H.R. Bill 2058, 
introduced in the 1st session of the 95th Congress, 



2 



See footnote 1 , page vi-1 

VI-2 



and companion State statues. This could be 
achieved within a time frame of 2-4 years. 

3 
Safety Certification of Industrial and Consumer Products 



Impacts : 

• Establishment of an industrial or workplace safety 
certification program directed at high risk 
products at the time of manufacture, installation, 
or subsequent resale, would reauire the conduct of 
25,000 inspections and audits annually at an 
increased cost of $10 million to the Occupational 
Safety and Health Administration (OSHA) of the 
Department of Labor. 

• Workplace products certification would result in 
product manufacturers in high risk categories 
expending from $300 million to $3 billion for 
augmentation of quality assurance and manufacturing 
controls. This increased expenditure for quality 
assurance augmentation would require upwards of 
150,000 additional technical specialists. 

• Consumer products safety certification impacts 
would be directed at high risk, unregulated 
products not currently covered under Federal pure 
food and drug, and transportation safety laws. 

Requirements for implementation: 

• Establishment of a workplace products safety 
certification program would require amendment of 
the Occupational Safety and Health Act (OSHA) at 



3 



See footnote 1 , page vi-1 

VI-3 



the Federal level and companion State industrial 
safety statutes. The establishment and development 
of the proposed program would reauire from 2 to 5 
years to implement. 

Implementation of a safety certification program 

for currently unregulated products would require 

amendment of the Consumer Products Safety Act and 

the development of both voluntary and mandatory 

standards. Approximately 3 to 5 years would be 

required for development of the certification 
program . 



Mandatory Provision of Product Liability Prevention Services by 

4 
Insurers and Self-Insureds 



Impacts : 



A premium surcharge of 1-2 percent on estimated 
product liability insurance coverage could yield 
between $7.8 and $31.2 milion annually for the 
conduct of product liability Drevention program 
inspections and audits to control or abate 
potentially costly product exposures and losses. 

The mandatory provision of preventive services by 
insurers and other technical specialists, using the 
funds, made available by the premium surcharge, 
could provide between 19,500 and 78,000 inspections 
and audits annually with priority emphasis going to 
small and medium-sized firms not currently served. 



4 



See footnote 1, page VI-1 

VI-4 



Requirements for implementation: 

• The establishment of mandatory preventive programs 
would entail amendment of State industrial safety 
and insurance statutes to create central funding 
and monitoring programs. This potential remedv 
would require between 1 to 2 years for enactment 
and development. 

5 
Financial Arrangements for Limiting Liability 

Impacts : 

• Adoption of Federal accounting and financial 
disclosure rules for valuation and writeoff of 
contingent liabilities and losses from product 
claims might offer significant advantages to some 
small to medium-sized firms desiring either to 
assume their own risks or to form association or 
self-owned insurance companies. 

Requirements for implementation: 

• The establishment of Federal accounting and 
fianncial disclosure rules for evaluation and 
writeoff of product contingent liabilities would 
require conduct of a revenue impact analysis by the 
Treasury Department, as well as, review and comment 
by the Internal Revenue Service and Securities and 
Exchange Commission. Approximately 1-3 years would 
be required for authorization and implementation of 
this potential remedy. 



5 



See footnote 1, page VI-1 

VI-5 



The principal remedy suggestions developed fr»om the analysis 
conducted by the Industry Study that have the most immediate 
impact on product liability problems of manufacturers are 
directed at both workplace and consumer product risks. As will 
be seen below, a significant amount of current litigation is 
generated by subrogation and third-party litigation activity 
stemming from workers compensation cases. Further, firms 
surveyed and interviewed by the study team overwhelmingly favored 
an "external authority to determine safety quality standards" and 
adherence to "good manufacturing practices." The evidence is 
that the existing institutional structure presented by State 
workers compensation laws, coupled with enforcement of 
compliance, standard setting and technical assistance powers of 
Federal workplace and consumer products safety legislation 
present a potential for significant immediate relief. Several 
forms of relief are already in existence or on the way to near- 
term achievement. This is reflected in pending Federal workers 

compensation reform legislation awaiting deliberation by the 

7 
Congress. It is also reflected in the recent reorganizations 

and new directions established for compliance and enforcement by 

the Departments of Labor and Health, Education, and Welfare and 

the Consumer Product Safety Commission. 

In the discussion that follows, there are four principal 
potential remedies suggested by the Industry Study for 
consideration by Federal and State regulatory agencies and 
industrial manufacturers and insurers. First and most prominent 
is the elimination of subrogation and third-party litigation 
under workers compensation, coupled with the equalization and 
raising of State benefit levels. Paralleling this is the use of 
safety certification of both industrial and consumer products in 
conjunction with adherence to both mandatory and voluntary safety 



See footnote l f paqe vi-1. 

7 
See H.R. 2058 National Workers Compensation Standards Act of 1977 

VI-6 



standards. Third is the mandatory provision of product liability 
prevention programs by industrial firms and insurers to control 
and abate improper manufacture, use, and misuse of products. 
Fourth, is the development of financial incentives for the 
establishment of either self-assumption or self-insurance 
programs for individual firms or manufacturer associations. 

Rationale 
The advancement of these four potential remedies is 
predicated on two considerations. First, the tools of 
accomplishing near-term reforms are available through the 
auspices of State workers compensation and industrial safety 
statutes, and the Federal industrial and consumer products safety 
legislation. They would address directly the major sources of 
safety violations which trigger both workers compensation and 
tort claims from workDlace or consumer product accidents. 
Finally, the bulk of these reforms, save for development of 
product safety certification, can be achieved within a period of 

Q 

less than 4 years. 

The use of the workers compensation system "assures 
compensation to injured parties," "minimizes the total sum of 
accident costs," "places incentives on the parties best able to 
implement preventive programs, " and "expedites the reparations 
process."" "In terms of its near-term prospects, this potential 
remedy can be implemented within a period of from 1 to 4 years, 
and is generally acceptable to manufacturers because of their 
understandine; of its features of scheduled benefits for 
compensation of injuries and its comparative cost-effectiveness — 
less than 1 percent of payrolls on average. 



o 

See footnote l f paqe VI-1. 



9 See table VI-1. 



VI-7 



While safety certification is not capable of being 
implemented within a time frame of less than two years, at a 
minimum, it has broad acceptance among; the firms responding to 
the Product Liability Industry Telephone Survey, the firms 
included in the personal interviews, and the firms responding to 
the trade association surveys discussed in chapter IV of this 
report . 

Adoption of mandatory experience rating and delivery of 
"preventive services" places incentives on the parties best able 
to implement risk prevention practices and programs, that is, 
industrial products manufacturers and insurers. The related 
incentives for group and self-insurance schemes should foster the 
development of comparable economies of scale for smaller risks 
through formation of self-owned or group insurance facilities. 
Suggested accounting disclosures and tax incentives would 
facilitate the valuation and amortization of contingent losses 
from product liability claims and ease financial and insurance 
burdens . 



WORKERS COMPENSATION AS EXCLUSIVE SOURCE OF RECOVERY 10 



Introduction 

One potential means of controlling product liability problems 
would be to eliminate by statute third-party liability actions 
for injuries covered under workers compensation and 
simultaneously raise the level of compensation for injured 
workers under the various State-administered programs. Some 
industrial product manufacturers have indicated support for 



See footnote 1 page VI-1. 



VI -8 



establishment of national standards for workers compensation 
benefits in exchange for a ban of third-party suits, and are 
further prepared either to fund the portion of increased premiums 
reauired by this remedy or to submit the individual claims to 
arbitration on a case-by-case basis. This solution reflects the 
general presumption that all persons injured in workplace 
accidents should be provided reparations using the established 
institutional framework of workers compensation — a major form of 
social insurance in this country. 

In Chapter V, the following issues were raised regarding this 
remedy: 

• The degree of third-party litigation among firms 
producing industrial machinery or materials. 

• The extent of possible increases in workers compensation 
benefits to provide a reasonable quid pro quo for 
obtaining a statutory bar to third-party suits. 

• The impact on employers, both in the aggregate and 
individually, from prevailing workers compensation 
reform proposals. 

This section will assess the range of impacts and feasibility of 
adopting this potential remedy. 

Extent of Litigation From Workplace 
Injuries Under Product Liability 

There are several possible sources of litigation stemming 
from workplace accidents involving industrial products. The 
first is simply a lien on damage awards placed by workers 
compensation insurers through subrogation of an individual bodily 



VI-9 



injury liability claim. The second is the introduction of a 
general damage claim under the strict liability doctrine of tort 
law against the industrial goods producer by the injured 
employee. The general damage awards are typically in excess of 
the scheduled benefits that may be received by an injured worker 
in any jurisdiction. 

There are several subordinate questions to answer on the 
extent and impact of third-party litigation under workers 
compensation. What is the extent of industrial product claims 
litigation and the impact of the several forms of third-party 
litigations under workers compensation on product liability, in 
terms of general damage award amounts, associated defense costs, 
and subrogations? There are several sources that were used to 
assess these impacts: an analysis of serious-injury closed claims 
prepared by the American Mutual Insurance Alliance, a survey of 
workers compensation carriers conducted for the Interdepartmental 
Task Force on Workers Compensation; and findings from several 
trade association surveys, notably those of the National Machine 
Tool Builders Association. 

The American Mutual Insurance Alliance conducted an analysis 
of 79 large-loss claims closed by member companies during 1975, 
with amounts generally exceeding $100,000 in value. While this 
analysis does not purport to represent the universe of product 
liability claims experience, or for that matter, the collective 
loss experience of insurers, the findings provide some additional 
insight to the information on third-party litigation derived from 
workers compensation. The 79 large-loss cases involved aggregate 
loss payments of $22.7 million with an average of $287,964 per 
case. More than 104 persons sustained some form of bodily 
injury. Interestingly, nearly three-fourths of the awards (70 
percent) involved industrial products, and 60 percent of the 104 
injured persons sustained bodily injuries while at work. Given 



VI-10 



this dominant pattern of workplace injuries, it is surprising 
that less than 35 percent of the large-loss claims involved 
workers compensation subrogations or liens. These subrogations 
generated less than 5 percent of total large-loss payouts-- 
approximately $1.1 million, or $29,512 per lien. The AMIA survey 
further indicates that workers compensation liens generated less 
than 11 percent of all large-loss claims litigation. 

Another indication of the impact of workers compensation 
subrogation or liens against bodily injury losses can be gained 
from the findings of a survey of insurance carriers conducted by 
the research firm of Teknekron, Inc. on behalf of the Department 
of Commerce and the Interdepartmental Task Force on Workers 
Compensation. The survey examined the loss experience and 
operating performance of the 50 leading workers compensation 
underwriters and virtually all of the exclusive and competitive 
State funds accounting for more than 90 percent of the earned 
premium value of the insurance line. Questions on the extent and 
value of subrogations and related liens were posed to responding 
underwriters. The findings indicated that for the most current 
three-year operating period (1971 to 1973) the underwriters in 
the Tekenekron survey subrogated between 2 and 3 percent of all 
workers compensation loss payouts. Based on workers compensation 
payments of approximately $3.2 billion in calendar year 1975, the 
total amount of subrogation may be estimated at about $60 million 

to $100 million. Viewed against the estimated loss payouts of 

1 2 
$1.7 billion for product liability in 1975, subrogations of 

workers compensation may account for approximately 4 to 5 percent 

of total loss payouts. It must be recognized that the AMIA and 

Teknekron survey findings present information on a limited 

sample in one case and on an aggregate basis in the other. 

More specific information on product liability claims 

associated with workplace accidents was obtained from two surveys 



1 1 

A Survey of Workers Compensation Insurers : Preliminary Report . 

Teknekron, Inc., Berkeley, California, September 15, 1976. 

12 

See footnote l r paqe VI-1. 

VI-11 



conducted by the National Machine Tool Builders Association — one 
of power press manufacturers and the second of the general 
membership. 

A survey of 11 punch press manufacturing concerns in 1975 
indicated that almost one in two work accidents Involving their 
equipment (as evidenced by first reports of injury filed with 
workers compensation carriers), resulted in lawsuits. The number 
and disposition of those suits are shown in table VI-1. 



TABLE VI-1 — National Machine Tool Builders Punch Press 
Survey — Workers Compensation/Product Liability Litiqation 



Number of accident reports 



Number 
1,361 



Accident 
Percent 
100 



Claim 
Percent 



Legal actions brought 



615 



45 



100 



Dispositions 

Settled out of court 
Settled in court 
Pending 



214 


16 


80 


6 


321 


24 



35 
13 
52 



Source: NMTBA Survey of Punch Press Manufacturers, July 1975. 

A survey of 60 capital goods manufacturers by the National 
Machine Tool Builders Association in 1976 indicates much the same 
oattern as for the more specialized and hazardous punch press 

manufacturers. The results of this survey are summarized in 
table VI-2. 



VI-12 



I 
I 

CD 

> 

u 

3 
C/S 

■u 



•-I C 

.C O 

CO -H 
•H 4-1 

4-> -H 
U 4J 

3 -H 

O 
u >- 

P* 4J 

•H 

W iH 

i-l -iH 

<D jD 
T3 <0 

rH -i-4 
•H iJ 

s 

CO 4J 

o 

rH 3 
O TD 
O O 

En h 

CD"V 

c c 

•H O 

.C—l 
O 4J 
tD TO 
£ (A 

c 



CD 

a 

e 
o 



•H CJ 
*J 

CO CO 

SB H 

I d) 

I .* 

• V-( 

CN O 

I 2 



CQ 



4-> 

E C 
•H CD 
(0 C 

rH t, 

O (1) 

PL, 



4-> 

C 4-> 

<d c 

*a a> 

•h o 

o t, 

o a; 

< cu 



<d 

JD 
E 

3 



O 

o 



OO t-~ LTi 



o 
o 






CM <r- 



CVJ 

oo 



c^ 
co 
on 



v£> LOCO 

oo -=r in 



o o 
o o 
o o 

CO vO 

r- LO 
CO 



CO 










CO 


4-> 










4-> 


t, 






+J 




E 


o 






L 




3 


a 






3 




O 


CD 


+J 




O 




E 


L 


br 




a 


4-i 


(0 


4-> 


3 




T3 <m 


3 


4^> 


c 


O 




<D O 


O 


c 


CD 


L 




D 


CJ 


CD 4J 


TJ 


X3 




a4-> 




E L 


•H 






O 3 


C 


0) 3 


C 


CO 




t- O 


•H 


rH O 


o 


C 


to 


"D 




4J C 4J 


CO 


o 


c 


"D 


T3 


4-> C 




•H 


o 


co a> 


CD 


CD <*-< 3 


Cw 


4-> 


•H 


E rH 


rH 


CO o o 


o 


O 


4J 


■H 4J 


4-> 


o 




to 


•H 


CO 4J 


4-> 


CD 4J 


Sh 




CO 


r-H CD 


0) 


br 3 C 


CD 


rH 


O O CO CO 


CO O (-H 


40 


(0 


a 






L 


E 


be 


CO 






D 


3 


CD 


•H 






> 


SB 


J 


Q 






< 



t- 



3 
•"3 



>> 
0) 
> 

L 
3 
CO 

4-5 



•H 

CO 
•H 

4-> 
O 

T3 
O 

L 

Pu 

< 
CQ 
E-" 
£ 
2: 



CD 
C 
t-, 
3 
O 
CO 



VI- 13 



Of 892 accidents reported involving machinery in the 

workplace, 389 claims resulted. Of the legal actions brought, 

slightly less than one-half (186, or 48 percent) were dropped, 

while 37 percent were settled out of court at an average 
settlement amount of $18,000. 

Fifteen Dercent of all claims (58) were settled in court with 
the majority of cases (42, or 72 Dercent of all cases brought to 
trial) handed down in favor of the defense. Juries found in 
favor of the plaintiff in 16 cases or 28 percent of all claims 
settled in court, with an average damage award of over $256,000 — 
more than 14 times the average amount of out-of-court 
settlements . 

A further factor in assessing the impact of third-party 
litigation under workers compensation on products liability is 
the frictional cost such as related expenses for defense of such 
actions and preparation of expert testimony. The AMIA survey of 
large-loss claims and the selected firm interviews of the 
Industry Study are two sources of information on these related 
aspects. The AMIA survey of large-loss closed claims for 
products liability indicated that the average defense costs per 
case handled was $20,680 and that additional costs for provision 
of expert testimony averaged $5,888 per claim. Inquiries made of 
selected firms during the Industry Study indicated that among 
five firms who responded, the average defense costs for workplace 
product liability claims was $15,000. 

Cost Impacts of Establishing Higher Uniform 
Benefits for Workers Compensation 

A major aspect to the adoption of a bar to third-party 
litigation under workers compensation would be the quid pro quo 
of equalizing and raising State benefit levels to some eauitable 



VI-14 



standard, presumably established through Federal legislation. It 
is doubtful that the courts would tolerate a complete bar to 
legal action to recover damages for injuries caused by the use of 
industrial products and equipment without adequate provision for 
economic compensation to replace some or all of the damages that 
could be obtained through tort. 

An actuarial cost analysis was undertaken to estimate the 
impact of several proposals for achieving the desired end of 
equalizing and raising benefit levels under workers compensation. 

Two sets of benefit schedule changes were specified for 

1 3 
costing, J One was predicated on pending national legislative 

proposals for reform of State workers compensation benefit 

schedules and administration. The other was based on raising 

scheduled injury awards for permanent partial disability to those 

currently in force under the most liberal existing orogram^-the 

Federal Employee Compensation Act (FECA). 

Data for development of these estimates were derived from 
several sources, notably the National Compensation Insurance 
Council, the primary workers compensation rating bureau, the 
specific loss experience of the State of California, the accident 
characteristics data for California presented in chapter III of 
this report, and actuarial cost relationships for the Federal 
Employee Compensation Act developed by the Industry Study 
contractor in performing a comparable analysis for the Department 
of Labor. 

The principal proposed Federal legislation for reform of 
workers compensation used as a guide in performing the cost 
analysis was the National Workers Compensation Standards Act of 
1977, House of Representatives Bill No. 2058. The major 
provisions of the Bill which affect workers compensation benefits 
are : 



13 

See footnote l r page vi-1. 



VI-15 



• changing the maximum weekly benefit for fatal/survivor 
and permanent total compensation cases to* 200 percent of 
the State average weekly wage, and 

• adjusting the annuities for fatal/survivor and permanent 
total injury compensation by not more than 8 percent 
annually . 

In addition to these proposed changes under H.R. 2058, the 
Industry Study has analyzed the cost of raising scheduled awards 
for permanent partial in jur ies--those involving loss of a 
physical part or use of the body resulting in some form of 
permanent impairment--to the levels specified under the Federal 
Employees Compensation Act. The FECA standards represent the 
highest valuation of these permanent partial disability awards 
currently in force in all 58 workers compensation jurisdictions 
in the United States and its territories. As evidenced by the 
findings of chapter III, permanent partial injuries have a 
greater likelihood of occurrence in workplace product accidents 
than from other sources of injuries. Thus, it was reasoned that 
adjusting these awards would offer the greatest potential for 
relief and accommodation of both economic losses and an unknown, 
but potentially significant, proportion of general damages awards 

tvoically decreed by a court settlement of a third-party 

14 
liability action. 

Table VI-3 summarizes the actuarial cost estimates of the two 
sets of benefit changes that might be instituted as a quid pro 
quo for making workers compensation the exclusing source of 
reparation in workplace accidents: (1) adopting the principal 
provisions of H.R. 2058 and (2) increasing scheduled awards to 
the levels specified under the current provisions of the Federal 
Employees Compensation Act (FECA). It should be noted that these 
estimates are exemplary in that they are based in part on the 



See footnote l f paqe VI-1. 



VI-16 



TABLE VI -3. — Estimated Rate Changes for Increased Benefits 

Under 'Workers Compensation as Exclusive Source 

of Recovery~for All Workplace Inj or ies 

Percent Increase 

in Workers 

Compensation Rates 

1. Benefit changes under H.R. 2058 

A. 200 percent of average weekly wages 

for maximum weekly benefits for 

permanent and total and fatal/ 

survivor compensation 3 

B. 8 percent escalator for annuities 

for permanent and total and fatal/ 

survivor compensation 18 

C. Combined effect of A and B 22 

2. Additional benefit change in scheduled 
awards 

A. Change in State scheduled awards to 

level of Federal Employee Compensa- 
tion Act 40 

3. Combined benefit changes 

A. Benefit changes under H.R. 2058 

(l.C.) 22 

B. Additional benefit changes in sched- 

uled awards (2. A.) 40 

C. Total rate increase 

(l.C) x (2. A) 
1.22 x 1.40 71 



Source: Appendix — Workers Compensation Benefit Changes 

Actuarial Analysis. 



VI-17 



TABLE VI-4. — Estimated Rate Changes for Increased Benefits 

Pnder Workers Compensation as Exclusive scarce "of Recover"? 

for Product-Related* Workpl a"c"*~ Injuries 

Percent Increase 
in 
Workers Compensation Rates 

1. Product-related benefit changes under 
H.R. 2058 

A. 200 percent of average weekly wages 
for maximum weekly benefits for 
permanent total and fatal/sur- 
vivor compensation 10 

2. Product-related additional benefit . 
change in scheduled awards 

A. Change in State scheduled awards to 
level of Federal Employee Compen- 
sation Act 11.2 

3. Combined benefit changes 

A. Total rate increase 

(l.A) x (2. A) 
1.10 x 1.112 22 



Source: Apoendix D — Workers Comoensation Benefit Changes 

Actuarial Analysis. 



VI-18 



loss experience and injury characteristics of the State of 
California, modified by the use of average wage levels for 
several other States. They nevertheless are suggestive of the 
range of probable benefit costs, and rate changes that would be 
occasioned by adopting the two benefit standards. 

The adoption of the principal provisions of H.R. 2058^-the 
raising of maximum weekly benefits and instituting an escalator 
for annuities for permanent and total disability and for 
fatal/survivor compensation — would result in a combined increase 
of 22 percent, on average, in employer insurance premium rates 
for workers compensation coverage. Increasing State scheduled 
awards for permanent partial awards to those levels specified 
under the Federal Employee Compensation Act, would result in a 40 
percent increase in employer workers compensation premium rates. 
The combined effects of simultaneously adopting both the 
provisions of H.R. 2058 and the additional scheduled award 

changes would be to increase estimated workers compensation 

15 
insurance premiums by 71 percent. 

Table VI-M presents the estimates o ? cost increases for 
workers compensation if only product-related injuries were 
covered by the higher benefit levels. These figures represent 
the impact of eliminating third-party liability actions for 
Droduct-related workplace injuries on estimated employer 
insurance premium cost. The adoption of the major provisions of 
H.R. 2058, in conjunction with making workers comDensation the 
execlusive source of recovery, would result in an increase in 
workers compensation insurance costs requiring a 10 percent 
increase in premium rates for workers compensation* The addition 
of the increase in State scheduled awards for permanent partial 
injuries to FECA benefit levels would result in an increase in 
workers compensation costs requiring an increase in insurance 
rates of 11.2 percent. The combined impacts of adopting both 



15 

See footnote 1, page VI-1. 



VI-19 



proposals for product-related injuries would increase premium 
rates by 22 percent, " 



The cost impacts of the benefit changes described above on 
the total workers compensation system, and on individual 
employers are summarized in table VI-5. The actuarial rate 
changes resulting from the foregoing analysis are translated into 
incremental changes in workers compensation premiums for both the 
Nation as a whole and the average firm. To adopt the proposed 
changes under H.R. 2058 alone would result in an increase of 
$1.45 billion over the current level of $6.6 billion spent for 
workers compensation insurance coverages by all covered firms in 
1975. This translates into an increase of $279 for each of the 
covered 5.2 million firms. The cost of raising the benefits for 
product-related injuries in order to bar third-party suits 
amounts to about $660 million, or $127 oer firm for covered 
firms . 

The adoption of FECA scheduled awards benefit standards would 
raise workers compensation premiums by $2.64 billion, or about 
$500 annually for the average covered firm. The proportion 
attributable to eliminating tort recovery for product-related 
injuries would amount to $740 million, or $142 per covered firm. 

The combined impacts of simultaneously adopting both benefit 
increases would be to raise premiums by $4.69 billion annually, 
or $902 per firm, above the current average of $1,269 per covered 
firm. The cost for product-related accidents, which may involve 
recovery of damage awards under the tort system at the present 
time, would account for $1.45 billion of- the combined increase, 

1 c 

or $279 per covered firm. 



See footnote 1, paqe VI-1. 



VI-20 



V) 
O 

•i-l 
U 
D 

■r- 
C 

M 

o 
o 

<D 
i— I 

a 

j^ 

u 

o 



o 


H 




° 


10 


»w| 


4J 




o 


> 


ro 


u 


D 


<D 


e 


> 


M 


O 




cj 


JJ 


0) 


5 


* 



io 

3 

ITl rH 

I o 

M X 

> U 

U CO 

■J CD 
CO 

«C c 
Eh O 

•H 
4J 

(0 
CO 

c 

A) 

ai 

e 
o 
ty 

n 

v 

M 

U 

o 



CO 

o tr 
c 
■p <a 
o x: 
ro u 
a 
e "o 

M <D 

C 

rH -rl 

ro ja 

v e 
o o 



CO 

CD rH 
rH CD 

3 > 

*o a> 

JZ 

cj < 
CO u 
Co 
CD b 
4J 
(0 o 

4-1 4-> 
CO 

CO 

4H 13 

O W 

A) 

< 



r* oo 



Vl 

a> 
■o 
c oo 

D in 

o 

CO CN 
CD 

CX • 
C OS 
(0 • 

x: x 

CJ 



4J CO 

cd 5 

Vl -H 

w e 

3 0) 

U vi 

Ok 



•i-l-H 




XI XI 




<y> m 




VO TT 


CN O 


• » 


O 1*1 


*J- rH 


CrtCN 


V> 


</V 


+ + 


+ + 



IT 




rHVO 




•H.-I 




X)-t 




x> 




'J' 




VO «* 


00 CN 


• r* 


o ^r 


CN • 


ITIiH 


</> 


</> 


+ + 


+ + 



•iH*r 




X)rH 




•H 




IDX) 




«r 


<r»r» 


• vo 


r*<N 


rHVO 


<NrH 


to- • 


</> 


+ + 


+ + 





•H I 


CN 1 




X) 


VO 




to 


<N 




• 


* 




vo 


iH 




t/v 


<r> 




tJ 


•o 




CD 


CD 




4-> 


4J 




(0 


ia 




rH 


rH 




0) 


0) 




Vl 


u 




1 


1 




0> 4J 


4J 


CO 


4J O 


e o 


e 


«0 3 


Vi 3 


3 


cr *o 


•rH X, 


•H 


0) o 


U-l O 


F 


Vt VI 


u 


a> 


cr 0* 


u Pu 


u 


cr. 


0> 


a. 


< 


cu 





















"D 










• 














CD 










«-,, 






o 








4J 










m 


01 




*j 








ro 










1 


rH 












rH 










M 


X> 




CO 








CD 










> 


<0 




VI 








Vl 

1 










Oi 


3 




ro 








4J 










rH 


X) 




» 








o 










X) 


•H 




ro 








3 










fl 


iJ 






• 


Vl 




•o 










4-> 


4J 
4J 




•a 

CD 


m 


o 

CM 




o 

Vl 










01 


(0 




iH 


1 




• 


a 










0> 






3 


M 


CO 


*>* 












CO 


CO 




tJ 


> 


CD 


CO 


o 










*" ' 


in 
o 




CD 

x: 


CD 


cn 

c 


1 

M 


4-1 






• 




CO 


CN 




o 


rH 


ro 


> 


CD 






in 




01 






CO 


X) 


x: 




iH 






r» 




cr 








ro 


o 


CD 


X> 






en 




c 


• 




Vi 


■tJ 




rH 


ro 




to 


iH 




(0 


« 




o 




4-1 


x> 


4-1 




o* 




• 


x: 


• 




U-l 


CD 


•H 


ro 


3 




cr 


u 


X) 


o 


X 






01 


U-l 


4-1 


x> 




c 


ro 


CD 






• 


CO 


CO 


CD 




•f4 




ro 


o> 


Vl 


jj 


u 


^» 


4J 


»-» 


c 


CD 


Vl 




x: 


>i 


01 


•H 


CD 


^r 


•H 




CD 


CD 


4J 




o 




> 


M-l 


T3 


1 


M-l 


4J 


X} • 


CO 


4J 






vi 


o 


CD 


c 


M 


CD 


o 


«>> 


^» 


ro 




4J 


(0 


cj 


C 


3 


> 


c 


< 


'O «* 








•H 


"D 




CD 






CD 




Vl 1 


CD 


CD 




VV4 


C 


CO 


X) 


CO 


CD 


X) 


c 


ro "h 


CO 


CO 




CD 


Oi 


e 




CD 


rH 




O 


3 > 


ro 


ro 




C 


rH 


v 


•D 


tJ>X) 


01 


•H 


ro 


CD 


CD 




CD 


«0 


•r-l 


CD 


c 


ro 


JJ 


4-1 


0) 


Vl 


Vl 




03 


o 


IW 


CO 


ro 


4-> 


ro 


ro 


•O rH 


CJ 


o 










O 


x: 




4J 


CO 


oi n 


c 


c 




C 


u 


c 


P- 


o 


CD 


CA 


c 


r-t ro 


•H 


•H 




o 


o 


o 


O 




0) 




CD 


3 4J 








•H 


UH 


•H 


VJ 


4J 


CO 


cr> 


D- 


T3 


4J 


4J 




4-> 




rH 


a 


■H 


*w- 


c 


e 


0> CD 


c 


c 




ro 


CO 


r-i 




U-4 




•H 


o 


X! i?) 


CD 


CD 




CO 


e 


•H 


c 


CD 


co 


CO 


u 


O CO 


O 


CJ 




c 


3 


E 


o 


C 


J-) 


•H 




CO -- 


Vl 


Vl 


• 


CD 


•H 






CD 


c 


ro 


CO 




0) 


CD 


tf-» 


a 


e 


CM 


TD 


X) 


CD 


u 


CD 


Vl CO 


a 


Q-*r 


E 


o> 


• 


CD 




T3 




CD 


O 4J 






1 


O 


u 


in 


CO 


t-l 


•H 


u 


>, 


UJ C 


rH 


CN 


M 


o 


a 




•0 


o 


CJ 


O 


o 


CD 


r- 


CM 


> 






VM 


X) 


14-1 


CJ 


vw 


rH 


CD "O 








CO 


c 


O 






ro 




a 


CO -H 


ro 


ro 


CD 


VI 


o 




CD 


CD 




CD 


g 


ro r» 






rH 


0> 


•H 


CO 


CO 


CO 


"D 


CO 


CD O 


CO 


W £. 


j£ 


4-1 


0) 


«0 


ro 


CD 


ro 




vi ro 


■H 


■H 


ro 


Vi 


ro 


*J 


CD 


CD 


■U 


CD 


rH 


o 






4-> 


O 


CO 


CO 


u 


u 


ro 


u 


ro 


C -D 


4-> 


4-1 




S 


C 


e 


o 


O rH 


o 


Vi 


•H (II 


CJ 


CJ 


CD 


1 


0) 


•H 


c 


c 


CD 


c 


o> 


4-1 


ro 


ro 


CD 


1 


a 


4J 


•H 


•l-l 


u 


•l-l 


TD 


4-i ro 


cv 


Q 


co- 


• 


e 


CO 






1 




CD 


C rH 


E 


E 


•~* 


Q 


o 


OI 


4J 


4J 


4J 


-w 


fc. 


0) CD 


••-I 


•H 






cj 




C 


c 


t> 


c 




o vi 






CO 


X 




c 


CD 


CD 


3 


CD 


<4-l 


Vl 1 


•o 


"D 


4-1 


•H 


CO 


o 


o 


O 


T3 


CJ 


o 


0) *•> 


CD 


CD 


c 


T> 


VI 




u 


u 


O 


v. 




o. O 


c 


C 


CD 


C 


o> 


-D 


CD 


CD 


u 


CD 


rH 


D 


•l-l 


•H 


•D 


0> 


J£ 


01 


a 


O 


a 


a 


CD 


CN TJ 


X) 


X) 


•H 


a • 


U 


CO 










> 


• o 


E 


E 


o 


a co 


O 


(0 


<N 


o 


o 


o 


CD 


rH Vl 


O 


O 


CJ 


<-H 


5 


CD 


CN 


rH 


jj 


^ , 


rH 


»h a 


u 


U 


ro 


CO 
•• rH 


• 


• 


• 


• 




• 




• 


• 


• 




oi ro 


l-i 


CN 


ro 


•a- 




in 




VO 


f- 


00 




CJ c 

v. <: 

3 


•• 






















O #H 


CO 






















c/} ro 


o> 






















3 


4-> 






















4J 


o 

55 






















o 

< 



VI-21 



SAFETY CERTIFICATION OF WORKPLACE PRODUCTS 1T 



Introduction 

A certification program would serve to establish that a 
durable industrial product was placed into the stream of commerce 
in a safe condition, as required by currently applicable 
occupational safety standards. Such a program could be 
established by statute, i.e., by an amendment to existing 
authority, to modify congressional intent, and to establish 
responsibility and accountability. Such an amendment would 
require OSHA to certify a product as safe upon application by a 
Qualified supplier. A product would be deemed safe if it met 
current occupational safety standards as promulgated by the 
Federal Government. A supplier would be qualified if his 
manufacturing practices conformed to the Federal standards of 
good practices established for that purpose. To minimize the 
requirements for OSHA field inspectors and compliance officers, 
the program could be designed and administered to make maximum 
use of alternative certification approaches. Any legislative 
mandate would be expected to designate OSHA as responsible for 
the development and implementation of the certification program. 

Scope and Assessment of Certification Program Options 

17 
The elements of a certification program would be: 

• Certification criteria, standards, documentation, 
licensing criteria and procedures, monitoring and 
program compliance. 

• Registry of products, licensees, suppliers, purchasers, 
etc . 



See footnote 1, page VI-1. 



VI-22 



• Procedures for self-certification by the supplier at the 
place of manufacture for products that will be used as 
manufactured . 

• Procedures for independent inspection and certification 
at the place of use for products that will be used as 
constructed or assembled at the workplace. 

• Procedures for periodic certification at the place of 
use by the owner or his workers compensation insurance 
carrier . 

• Procedures for incorporating mandatory Federal standards 
where they are applicable, e.g., FAA or NHTSA. 

• Procedures for evaluating and certifying older equipment 
at the place of use or sale. 

The self-certification program at the place of manufacture would 
be integrated with the manufacturer's product liability 
prevention program. Certification by independent sources at the 
place of use would be presumably on a fee basis to the supplier, 
using inspection services that are licensed by OSH.A to document 
and certify compliance with safety standards as installed. This 
procedure could be integrated with acceptance inspection and 
testing in many instances. Subsequent periodic reinspection and 
recertification at the place of use could be accomplished through 
a self^certification program; the possibility of calling on the 
workers compensation insurance company to endorse that 
certification should be considered and may provide an incentive 
for the insurance company's loss prevention engineers to survey 
the place of use. A cost to the supplier would have to be 
estimated on the basis of comparable inspection and certification 
services. The impact of the certification program on OSHA would 



VI-23 



be to require additional staff in program development, 
implementation, monitoring, and enforcement; the present 
inspection and enforcement staff is said by OSHA to be inadequate 
to meet existing priorities through random or accident-initiated 
inspections and subsequent compliance activity. 

The certification program could be targeted initially at 
high-risk capital goods and at high-risk industries, as described 
in chapter III. Thus, certification program would initially 
impact on the producers of metal-forming and metal.^cutting 
machinery, woodworking machinery, textile machinery, and grinding 
wheels and grinders. The periodic recertification of these 
products at the place of use would impact on primary and 
fabricated metals products, lumber and wood products, rubber and 
plastics manufacturing, basic forest products industries, 
sawmills, food processing, furniture and fixtures manufacturing, 
machinery and electrical equipment and supplies manufacturing, 
and construction industries. The producers of the products noted 
above were shown by the Product Liability Industry Telephone 
Survey to be experiencing difficulties in product liability 
insurance availability and cost, as well as increased claims and 
settlements from workplace injuries. 

Further clarification would be required concerning; the 
responsibility of the dealer and distributor in the certification 
process, particularly regarding resale of used equipment. There 
are at least 2,500 such firms in the machine tool field alone; 
according to their trade association, these dealers stock about 
40,000 used machine tools, on the average, representing about 30 
percent of total machinery sales annually. About 40 percent of 
the machine tools in use are in the hands of some 115,000 small 
metalworking firms; the remaining 60 percent are concentrated in 
about 17,000 medium and larger establishments. 



VI-24 



Estimated Impact of Certification Program on 

1 ft ' 
OSHA and Target Product Firms 



Tables VI-6 and VI-7 display estimates of the probable 
impacts of the projected safety certification program targeted at 
high-risk workplace product producers and establishments. These 
estimates are based in part on planning factors derived from the 
OSHA enforcement experience for both State and Federal 
jurisdictions for Fiscal Year 1975. These planning factors 
encompass the range of the inspection and compliance workloads 
and the productivity of the combined State and Federal work 
force. As indicated in table VI-6, the average inspector 
conducts 60 inspections per year involving upwards of 9.2 hours 
each, at a cost of approximately $400 per inspection. 

Several assumptions have been made concerning the nature of 

1 ft 
the certification program. They are as follows: 

• Certification programs or manufacturers' self- 
certification programs would be targeted at 10,000 
product types on a 4-year recertification cycle. 

v> Conduct of 10,000 workplace inspections per year for 
original installations. 

• 10,000 followup investigations per year for high risk 
product categories. 

• Approximately 2,500 inspections per year for industrial 
products resold and modified. 

As indicated in table VI-7 the estimated budgetary impact on 
the combined State and Federal OSHA compliance work force is an 
aggregate requirement of approximately 25,000 certification and 



18 

See footnote 1, paqe vi-1. 



VI-25 



TABLE VI-6. — Occuoational Safety Inspection 
and Workl oad Uata , Ff s' cal Ye a r 19 lb 

Average number of inspections performed 150 r 000 

Violations uncovered 450,000 

Average number of inspections per com- 
pliance officer 60 

Average number of man-hours per inspec- 
tion (including travel) 9.2 

Approximate cost per inspection $400 



Source: Department of Labor, Occupational Safety and Health 
Administration (OSHA) , Office of Planning, Evaluation and Research 



VI-26 



TABLE VI-7. — Estimated Imoact of Certification 

Program Targeted at High Hi? K Industrial 

P r °cT5c e r s ancPEstab'lishments 1 

Audit of manufacturers self-certification 
programs; 10,000 Droduct types- 4-year 
recertif ication cycle 2,500/yr. 

Workplace inspections for original instal- 
lations 10 f 000/yr. 

Compliance actions on high severity 

follow-up 10,000/yr. 

Inspections for resales and modifications 2 r 500/yr. 

Total estimated workload 25,000/yr. 

Additional inspectors (Federal and 

State) 415 

Estimated Federal and State budget impact $10 million 

Estimated impact of self-certification 
program on manufacturers: (assumes 
doubling of quality assurance staffs 
from 0.5 per $1,000,000 of sales to 1.0 per 
$1,000,000) $3.0 billion 

Additional quality assurance personnel 150,000 



^Assumes aggregate sales volume for target-product firms 
of $300 billion annually, covering 25,000 firms. 

Source: Gordon Associates, Inc., December 1976. 



VI-27 



inspection events at an estimated annual cost of $10 million 
using current OSHA planning factors. 

The impact on manufacturing firms of this prospective remedy 
is based on planning factors for quality assurance and prevention 
programs derived from selected firm interviews. These factors 
are based on the proportion of annual aggregate sales devoted to 
the cost of quality assurance. On the average, the selected 
firms reported about 0.5 professional workers engaged in product 
quality assurance activities per million dollars of sales. It is 
estimated that such a safety standards certification program 
would result in a doubling of quality assurance employment. At 
an average annual cost per employee of $20,000. This would 

result in a doubling of quality assurance costs, from one percent 

19 

to two percent of sales. 

The aggregate impact of this cost increase on the 25,000 
target firms would be to increase quality assurance expenditures 
by about $3 billion annually. It would also involve the 
acquisition and training of more than 150,000 technical 
specialists. Clearly, this requirement could not be met 
immediately given the annual output of technical and engineering 
schools . 



DEVELOPMENT OF STANDARDS FOR CERTIFICATION 
OF UNREGULATED CONSUMER PRODUCTS 19 



Introduction 

The assessment of safety standards and certification programs 
as a remedy for unregulated products centers on their adequacy to 
protect the population at risk from unreasonable hazards. The 
theory behind the Federal role in the development and imposition 
of safety standards has been broadly to make them the more 



1 9 

See footnote l f paqe VI-1. 



VI-28 



stringent the less voluntary the exposure, e.g., purity of foods, 

safety of drugs, airworthiness and traffic control for air 

transportation, etc. Accordingly, the more stringent standards 

have specified methods of production, testing, and certification 

that tend to embody the higher levels of the state-of-the-art. 

In contrast, the standards for the less regulated commodities 

tend to compromise in their criteria, i.e., be less stringent 
with respect to the state-of-the-art. 

The only common characteristic of the different kinds of 
standards is that they represent a minimum level of safety 
performance. The range between that minimum and a feasible 
maximum is narrowest for the FAA and FDA standards and widest for 
the unregulated industries which operate on self-selected 
standards . 

The adequacy of a standard to protect the population at risk 
is at the heart of the controversy over its general admissability 
into evidence in cases involving product liability claims. It is 
clear that failure to comply with any standard is a failure to do 
the minimum; it is not clear that compliance with a standard is 
equivalent to doing the best possible job of protecting the 
population at risk from unreasonable hazards of injury. 

Voluntary Versus Mandatory Standards 

The argument about standards has frequently centered on their 
mandatory or voluntary nature, and has concerned the question of 

whether mandatory standards should incorporate voluntary 

20 

standards by reference or be developed independently. The 

relevant issue in products liability is whether the standard is 
stringent and whether the standard for the product is matched by 
a complementary system of controls on the use of the product, 
i.e., licensure, certification, etc. Use of products 

For a detailed discussion of this issue the reader is referred 
to Attachment A for an examination of this and other related 
safety standard issues. 

VI-29 



manufactured to the FDA and FAA standards is largely controlled 
by licensure and other forms of regulation to protect the 
copulation at risk. Existence of such regulations and controls 
on the use of products that conform to standards is an important 
factor in' distinguishing among standards for potential 
admissibility, as is the sanction provided for improper use and 
the attendant liability. 

p i 
Possible Certification Programs 

Assuming that Federal consumer Droduct legislation could be 
amended to permit compliance with safety standards or state-of- 
the-art as a legal defense, new systems and standards would have 
to be develoDed. The Consumer Product Safety Act (CPSA) could 
authorize a program of safety certification predicated on 
comoliance with a comprehensive standard of "good manufacturing, 
design, and testing practices." That standard would include 
requirements for product liability prevention programs, as well 
as reauirements for determining the products 1 exoosure 
characteristics. The development of such a program would have 
significant impact on the Consumer Product Safety Commission 
(CPSC) which is not now staffed to develop such stringent 

standards, comparable to the FDA's and FAA's standards for 

21 

regulated products and regulated uses. 

As evidenced by the analysis in chapter III of consumer 
product accidents--their incidence and relative severity — the 
product categories which would most benefit by such a 
certification program are outdoor power equipment, bicycles, 
medical devices, and selected sporting goods such as helmets. In 
view of the large volume and potential exposure hazard, space 
heaters and electrical appliances, among other products, may be 
among the priority product lines for consideration of a safety 
certification program. 



21 

See footnote 1, paqe VI-1 



VI-30 



Limitations of Estimating Impacts 

The Consumer Product Safety Commission (CPSC) is currently 
developing; a number of mandatory standards, some of these are in 
the target Droduct categories, e.g., outdoor power equipment. 
However, the Commission does not have an active enforcement 
program of comparable scope to that of the OSHA, FAA or FDA. A 
certification program based on a mandatory standard for outdoor 
nower eauipment could be develoDed on a pilot basis using 
benchmark data on the comparable costs and impacts on firms. 
Some limited and tentative information on the scope on this 
impact may be derived from the supporting inflationary impact 
statements currently in process, covering the costs and benefits 
of the proposed standard. 

The Industry Study could not develop adequate estimates of 
the impact of development of a certification program of 
comparable scope to that developed for workplace products. This 
is beyond the time and resources available for this study. 
However, the evaluation of a certification program for targeted 
high-risk consumer products could be attempted by the Commission 
itself. This could be partly based on data derived from 
inflationary impact statements and surveys of the target 
industries' resources and funding for quality assurance and 
product liability prevention programs. 

22 
Probable Impacts and Implementation Reouirements 

The adoption of safety standards and certification programs 
for unregulated consumer products would have several cascading 
effects on affected groups—consumer product manufacturers, the 
Consumer Product Safety Commission and voluntary standards 
groups. It would increase production, quality control, and other 
costs of manufacturers' product liability prevention programs. 



22 

See footnote l f paqe VI-1. 



VI-31 



Consumer product firms in the target industries, with whom 
discussions were held by the Industry Study team, indicated 
rather substantial investment in product liability loss 
prevention and control activities, e.g., the accident reporting 
and analysis system developed by the outdoor power equipment 
manuacturers through the auspices of their trade association. 
Where substantial product liability prevention programs already 
exist, the effects of a possible certification program might be 
rather minimal, perhaps requiring only an increase or 
augmentation of current quality control efforts. 

The primary impacts would fall most heavily on Federal and 
voluntary standards development bodies. As in the case of OSHA, 
certification of unregulated consumer products might be enhanced 
by incorporation of prevailing standards or state-of-the-art 
specifications . This would still require rather extensive public 
comment and review, as well as analysis of the impacts of 
standards. Federal enforcement and technical assistance programs 
would have to be expanded rather considerably to conduct the 
certifications and certification program audits. The mandatory 
provision of product liability prevention program services, by 
insurance carriers and others, might be used as part of a self- 
warranting scheme to alleviate technical manpower bottlenecks 
created by the certification system. 

Lastly, while a certification and related standards 
development program might be a desirable element in an overall 
consumer products remedy system, it would reauire an amendment of 
the Consumer Product Safety Act. It would also require a period 
of from 3 to 5 years to implement such a program. 



VI-32 



MANDATORY PROVISION OF PRODUCT LIABILITY 

PREVENTION PROGRAMS 2 3 

Introduction 

The mandatory provision of product liability prevention 
programs to curb or abate product liability exposures could be a 
major element in a workplace remedy system. 

A case for mandatory provision of programs and services by 
insurance carriers and self-insureds could be made by reviewing 
the basic findings of the Product Liability Industry Telephone 
Survey. As shown in chapter IV, only 37 percent of all firms 
responding to the telephone survey indicated that they had a 
special program directed at reducing product liability claims. 
Among the small firms, only 19 percent had such programs, while 
39 percent of the medium size firms and slightly over half of the 
large firms had product liability prevention programs. 

Moreover, 46 percent of the smaller firms with insurance did 
not receive insurance carrier loss prevention services, compared 
to 24 percent of the firms with annual sales over $100 million. 
Less than half of the firms in the Product Liability Industry 
Telephone Survey that did receive insurer inspection services 
reported receiving recommendations for refining and upgrading 
programs, principally in duality assurance and improved labeling. 
It appears that there is a need for larger resources to be 
committed for insurance carrier loss prevention services in order 
to address the needs of smaller firms. 

Mandatory Certification and Provision of Preventive Programs 

Product liability prevention programs take potential misuse 
into account in the design, testing, or other appropriate stage 



23 

See footnote 1, page VI-1. 



VI-33 



of manufacture. As a practical matter, a pnoduct liability 
prevention program itself is not a defense, only its result — a 
safe product — serves as a defense against product liability. 
Product liability prevention programs clearly place a significant 
incentive for risk prevention where it is potentially most 
effective, and incorporate that incentive into the price of the 
product . 

Many insurance firms offer loss control and product liability 
prevention services, usually in connection with surveying; and 
ratine: a risk, i.e., an applicant for liability insurance. The 
Product Liability Industry Telephone Survey showed that, for many 
firms, a product liability prevention program had to be 
acceptable to the insurance company as a prereauisite for 
underwriting. Firms which elected to assume a larger proportion 
of both the risk and the claims handling found it in their self- 
interest to increase the effectiveness of their product liability 
prevention programs. The Industry Study found no objection from 
the 20 firms involved in detailed interviews to the prospect of 
complying with product liability prevention program requirements 
as a auid pro quo for guaranteed availability of product 
liability insurance. In fact, they welcomed such a proposed 
remedy. 

Insurance organizations are becoming increasingly more 
knowledgeable about risks they insure, i.e., industries and 
firms. If product liability prevention programs are to impact on 
the availability and af fordability of product liability 
insurance, the most direct linkage would clearly be to require 
the State insurance commissioners, and/or the insurance industry, 

to determine the adequacy of a firm's product liability 

oh 
prevention program. 



24 

See footnote l f paqe VI-1. 



VI-34 



Certification of the adequacy of product liability prevention 
Drograms of individual firms in accordance with specific criteria 
related to insurance risks would also be reauired if joint 
underwriting, reinsurance, or access to State funds were 
considered as remedies. It is doubtful that compliance with a 
ereneral set of guidelines would be considered acceptable in most 
cases. Proof of compliance with Federal good manufacturing 
Dractices (such as the FAA and FDA requirements) in relevant 
industries should be adeauate. This would avoid the duplicate 
cost and burden of auditing programs in those industries where 
Federal standards exist. 

Three options present themselves as mechanisms for 
administrative and financial support of certification programs 
and assured delivery of preventive services by insurers and 
regulatory agencies. 

First would be product liability prevention programs 
certified by State insurance commissioners. If this option 
were chosen, certification might assure availability of 
product liability insurance from firms chartered to write 
such insurance in that State from reinsurance facilities. If 
this option were followed, the implementation of the audit 
and certifications procedures could be carried out with the 
cooperation of the insurance industry which has the loss 
control expertise. A premium surcharge mav be necessary to 
defray the added expense of the audits. 

Second would be product liability prevention programs 
certified by CPSC (for consumer product manufacturers) and by 
OSHA (for capital goods manufacturers). If this option were 
chosen, such certifications should also result in making 
product liability insurance available. 



25 

See footnote l f paqe VI-1. 



VI-35 



Third where the insurance industry % is incapable of 
conducting the total magnitude of reauired product liability 
prevention program certifications, then an alternate 
mechanism might be to levy a surcharge on insurer premiums to 
be collected by State industrial safety agencies. Such funds 
could be pooled centrally to facilitate the conduct of 
direct, self-warranted, and periodic spot audits using 
regulatory staff, or contractual support consisting of 
independent specialists, including the loss prevention and 
control staffs of insurers. The surcharge might be fixed at 
a nominal level--such as 1 or 2 percent of earned premiums. 

Estimated Impacts and Implementation Requirements 

Estimates of the funds that would be provided through a 
surcharge, and the number of product liability program 
inspections that it would support, are shown in table VI-8. The 
estimates are based on aggregate premium for miscellaneous 
liability of $3.9 billion in 1975, and alternative estimates of 
the proportion of miscellaneous liability attributable to 
comprehensive general liability insurance lines, including 
product liability. Based on information supplied by the 
Insurance Study contractor and the Insurance Services Office 
(ISO), the range lies between 20 and MO percent, respectively. 
Applying these factors to alternative levies of 1 and 2 percent 
of estimated premiums, will yield between $7.8 million and $31.2 
million for the conduct of product liability prevention 
cerifications and audits nationally. 

Using average inspections and certification costs of $400 
each (based on information supplied by the Department of Labor, 
OSHA), the range of annual compliance inspections and 
certifications that could be provided by this means is estimated 
to be between 19,500 and 78,000 (see table VI-8). At issue would 



VI-36 



TABLE VI -8. — Estimates of the Economic Impact of 

Proposed Product LlaMl'iTV FTe v e7iT i 6 n SaT r cTra"r'o> '~ o~n 

Insurance Premiums 



Expense loadinq factor attri- 
butable to loss prevention 
and control services 20 percent 40 percent 

1 percent $7.8 million $15.6 million 

2 percent $15.6 million $31.2 million 

Equivalent number of inspec- 
tions usinq OSHA enforce- 
ment experience and costs 

1 percent 19,500 39,000 

2 percent 39,000 78,000 

Total miscellaneous liability 

qross premiums, 1975 $3.9 billion 

Commissions (12 percent) .5 billion 

Other expenses (12 per- 
cent) .5 billion 



^There was not sufficient detail in the published 66-70 
summaries for pharmaceutical breakdown. 

^Unpublished tabulations of closed workers compensation cases, 
1971-72, State of New York Workers Compensation Board, Division of 
Research and Statistics. 

Sources: Gordon Associates Inc.; data aqqreqated from Best's 
Executive Data Service, 1976. 

Source: Summary tabulations : Characteristics and Costs of Work 
Injuries in New York State: All Industry Report 1966-70, State of 
New York Department of Labor Vol. III. Feb. 1976. 



VI-37 



be the feasibility of using these resources for* addressing the 
product liability prevention needs of smaller to medium size 
high-risk firms, and the availability of skilled manpower to 
accomplish the work. 

This remedy would ensure the provision of preventive services 

26 

to presently uneconomical risks. As indicated in table VI-2, 

the development of such a certification system would involve 
State insurance commissioners, insurers, and State and Federal 
safety agencies. The mechanisms for achieving these ends would 
require amendment of State industrial safety and insurance 
statutes to establish the authority and funding mechanisms for 
mandatory provision and certification of product liability 
prevention services. This is comparable to efforts undertaken 
recently by the States of Texas and Oregon in mandating loss- 
prevention services by insurance carriers to all risks, 
regardless of size, as a requirement for being licensed to write 
workers comDensation coverage in those jurisdictions. Whatever 
option were chosen, the implementation of this remedy would 
require uoward of 2 years. 

FINANCIAL AND INSURANCE ARRANGEMENTS" 

Introduction 

The Product Liability Industry Telephone Survey, the 
discussions with selected firms, and responses to trade 
association surveys have indicated that a potential remedy of 
major significance is the development of financial and insurance 
arrangements that would permit product manufacturers either to 
assume their own risks or to self-insure them. Considerable 
interest was evidenced in the formation of captive or self-owned 
insurance companies to underwrite product liability and other 
business risks. However, a major barrier was the lack of any 



26 

See footnote l f paqe VI-1. 



VI-38 



incentives for the amortization or sDreading of the contingent 
liabiliities created through claims or exposures involving either 
older products or those with substantially unknown risks; as is 
the case before introduction of a product into the marketplace. 
While these barriers were largely identified by trade 
associations made up of large industrial and consumer product 
manufacturers, their removal would also facilitate the assumption 
of risks by some small to medium size firms, or the formation of 
association or self-owned insurance companies. 



Federal Financial Incentives for Self-Assumption and 

27 

Insurance of Product Liability Risks 



A major Droblem faced by small to medium-size firms who 
retain substantial risks is the prospect of a single catastrophic 
claim that could wipe out the net worth of the enterprise. 
Suggestions were received during discussions with selected firms, 
and from several major trade association surveys that the present 
Internal Revenue Service rules make it uneconomical for firms to 
assume substantial portions of their product liability risks. A 
potential remedy would be to revise the tax regulations through 
an IRS ruling or amendment of the Internal Revenue Code, so that 
reserves for contingent liabilities from products may be treated 
in a way that reduces the necessity for first-dollar or low- 
dollar insurance coverage, and enhances the possibility of 
assuming risks. In effect, the revenue ruling or tax code change 
would permit the deduction of such loss reserves as a cost of 
doing business. 

A variant of the above approach would be to provide both tax 
relief and enabling powers to broaden the scope of group self- 
insurance or self-owned insurance facilities. Currently, only 



27 



See footnote l f page vi-1. 



VI- 39 



the latter is beine; actively considered or pursued by trade 
associations and individual firms. 

The effect of these proposals would be to foster economies in 

the conventional and surplus insurance markets for small to 

24 
medium-sized firms with large risk retention levels. 

Implementation would require a revenue impact study on the 

contingent loss reserve proposals for small to medium-sized firms 

in self-insurance schemes. It would also require obtaining a 

favorable IRS ruling and/or amendment of the Internal Revenue 

Code, and the development of model financial responsibility 

statutes for States, coupled with their subsequent enactment and 

implementation. If actively pursued, this remedy could be 

implemented within a period of from 1 to 3 years. 



VI-40 



CHAPTER VII. — A SUGGESTED PROGRAM FOR ADDITIONAL 
PRODUCT LIABILITY RESEARCH AND REMEDY DEVELOPMENT 

INTRODUCTION AND OVERVIEW 

Solutions to the emerging product liability problem facing 
American industry are diverse. What the Industry Study analysis 
of the dimensions of this problem has achieved is to present 
evidence of what lies behind current difficulties experienced by 
firms of high risk workplace and consumer products. The remedies 
analysis has provided a first-order ranking of the relative 
impact of a limited number of potential reforms. 

In general, the present difficulties of product liability 

appear to arise from inadequacies of the tort-liability and 

insurance systems, as well as the occurrence of accidents 

1 
themselves. For the most part, manufacturers' preventive efforts 

can mitigate the risks of the physical hazards of products during 

manufacturing;, and those of the distribution system under their 

immediate control. However, with the exception of regulated 

products such as aircraft, drugs, and other high or latent risk 

categories, it is unlikely that the accidents occasioned by the 

end use of products can be effectively controlled and policed. 

That is not to say, however, that adoption of systematic safety 

standards and certification, as well as surveillance programs for 

both workplace and consumer products, would not effectively 

reduce present uncertainty about both product risks and losses 

substantially. Rather, it is extremely difficult to control the 

exposure of products once they have entered the stream of 

commerce . 



The assumptions underlying the determination of areas for future 
study and research, and the conclusions and opinions drawn 
therefrom, are those of the contractor and do not necessarily 
represent the opinions or findings of the Interagency Task Force 
on Product Liability . 



VI I*- 1 



However, because of the limited time and mandate of the 
Product Liability Task Force, definitive conclusions could not 
be reached on the extent of product-related liability problems 
and the efficacy of potential remedies. The analysis of industry 
product liability experience was restricted to the categories 
selected for examination by the Task Force. As evidenced by the 
responses of manufacturers in both the telephone and trade 
association surveys, there are clearly major problems emerging 
among other industrial and consumer products that were not 
included within the scope of the Task Force research agenda. The 
examination of product injuries conducted by the Industry Study 
has also identified emerging liability problems among key non- 
manufacturing sectors such as State and local government and 
educational services institutions. 

Because of the lack of data or supDorting information, a 
comprehensive assessment of potentially significant remedies 
could not be accomplished within the time frame of the Industry 
Study. Among remedies deserviner additional research and 
evaluation are: no-fault product accident compensation systems, 
systems for apportioning the legal costs of products liability 
actions among the parties, statutory remedies limiting products 
liability, and universal loss experience rating. 

A proper role for the Federal Government that has emerged 
from the Industry Study analysis is the monitoring of: (1) 
product liability problems of both currently targeted categories 
and additional industrial and consumer goods and (2) progress 
made towards implementation of potential remedies. It also 
includes the development and conduct of research into other 
potential remedies. The Department of Commerce might serve as 
the focal point for this important function to assure 

coordination amorn? Federal and State agencies with responsibility 

2 

for subsequent implementation of suggested remedies. 



See footnote l f page VII-1 



VII-2 



In this final chapter we shall address the monitoring and 
research needs suggested for further investigation, both with 
respect to the dimensions of products liability and the impact of 
additional remedies. 

SUGGESTED ROLE OF GOVERNMENT — MONITORING OF PRODUCT LIABILITY 
REMEDY IMPLEMENTATION AND RESEARCH. 

The potential remedies examined by the Industry Study could 
be implemented through a combination of private and public 
initiatives. Some of the potential remedies could be achieved 
administratively under existing legislative authorities or by 
private manufacturers and insurers. Some would require enabling 
legislation. However, there is a role for government. That role 
involves the task of monitoring the status of the problem, the 
status of remedy implementation, and progress of research into 
the various areas indicated by this study. 

Monitoring of Product Liability Trends 

This effort would entail the develoDment of a data base from 
a variety of sources for determining trends in product accidents 
and injuries, product liability claims and legal actions, 
insurance premium costs for both the products selected for 
investigation by the Task Force and others suggested for possible 
investigation by the Industry Study. This would entail the 
acquisition and analysis of additional workplace injury reports 
from State workers compensation asrencies, under the aegis of the 
Department of Labor, and the expansion of consumer product injury 
and accident investigation reporting by the Consumer Product 
Safety Commission (CPSC). A further requirement would be for 
conduct of additional surveys by the Department of Commerce, 
along the lines of those conducted by the Industry Study and 
trade associations, in additional product categories. 



VII-3 



Information derived from such statistical studies and surveys 
could provide as complete a picture as feasible of emerging 
trends and problems among product manufacturers. These surveys 
could be planned and conducted to develop findings within one 
year from the delivery of this report to the Task Force. 

Assessment of Remedy Implementation 

The analysis of remedies in the previous chapter identified a 
complement of four potential remedies offering near-term 
prosDects for alleviation of product liability problems. With 
the exception of workers compensation as an exclusive source of 
recovery for industrial product-caused injuries and possible 
changes in tax laws, these remedies probably would not require 
new Federal legislative authorities. Safety certification of 
products might be accomplished within the existing mandates and 
administrative authorities of the Occupational Safety and Health 
Administration (OSHA) and the Consumer Products Safety Commission 
(CPSC). Mandatory provision of preventive programs for products 
liability could be accomplished at the State level under the 
leadership of State insurance commissioners. Financial 
incentives for association and self-insurance arrangements, could 
be achieved through changes in the Internal Revenue Code or 
rulings of the Internal Revenue Service (IRS). 

This would be especially critical if Federal legislation for 
the workers compensation remedy and safety certification programs 
by OSHA and CPSC were initiated. These remedies would have long 
lead times for their implementation. 

3 

Development and Coordination of a Suggested Research Program 

A number of research programs have been suggested by the 
Industry Study for further investigation and analysis by the Task 



See footnote l r paqe VII-1. 



VII-4 



Force. Development and analysis of product accident and 
liability data has been earmarked as a major element in basic 
research into causes and factors underlying emerging product 
liability trends among manufacturers. 

The area of remedy development has reouirements for both 
development and sponsorship of research by Government, industry, 
and insurers. For example, a potential remedy consisting of no- 
fault accident compensation, would probably require federal and 
state study commissions to examine its value as a replacement for 
the present tort-law system and to determine its relative 
importance in other first- and third-party benefit programs such 
as workers compensation and national health insurance. 

Several remedies, such as a statute of limitations or useful 
product lives, would require research programs to develop a 
factual basis for evaluating their impacts before being 
considered by Federal safety regulatory agencies and State 
legislatures . 

ADDITIONAL RESEARCH INTO PRODUCT LIABILITY EXPERIENCE 4 



The Industry Study has demonstrated techniques for developing 
information on the nature and characteristics of products 
liability for manufacturers. The profile of product injuries in 
chapter III has indicated the usefulness of developing data from 
State workers compensation and Consumer Product; Safety 
Commission records for identification of the frequency, severity, 
trends and costs of products accidents. The conduct of the 
telephone survey and trade association surveys of manufacturers, 
discussed in chapter IV, although limited in scope, has 
demonstrated the efficiency of such techniaues in developing 
information on the experience of specific industry groups. 



4 
See footnote l f paqe VII-1. 



VI I- 5 



Despite the usefulness of demonstrating the practicality of such 

data-gathering and analysis techniques, there* are the more 

substantive oroblems of expanding the scope of overall research 

to develop a comprehensive statement on industry product 
liability experience. 

The following areas were identified by the Industry Study as 
useful areas for extension of the analysis in order to fill gaps 
in the available information and to obtain a more complete 
definition of the problems concerning product-related injuries, 
and their consequences for American industry. 

• Conduct of surveys of additional product categories 

• Development and conduct of additional product injury 
analyses and investigations 

5 

Conduct of Research Into The Experience 

of Other Product Categories 

While the eight product categories selected by the Task Force 
may be representative of industrial and consumer products 
currently experiencing major products liability difficulties, 
they were never meant to be completely definitive. Thus, there 
is a requirement for the application of the survey and data 
analysis techniques presented in this report for the examination 
of the experience and problems of other product categories. 

During the conduct of the telephone survey and discussions 
with selected manufacturers, the Industry Study uncovered product 
liability problems, particularly among some other consumer 
products not included within the research scope. The analysis of 
accident reports filed with the Consumer Product Safety 
Commission NEISS system indicated that such consumer products as 



See footnote l f paqe VII-1. 



VII-6 



bicycles, stairs, furniture, and foods appear to be major sources 
of product injuries in terms of either frequency or relative 
severity of injury. 

Development and Analysis 

6 
of Product Injury Information 

There is a need for additional product injury research to be 
conducted. This would require an extension of product injuries 
analyses such as that reported in chapter III in order to include 
additional product categories from State workers compensation 
accident reporting systems and to add more product categories to 
the NEISS system of the Consumer Product Safety Commission. The 
State workers compensation accident reports could be compiled for 
major industrial States to facilitate an analysis of underlying 
trends in workplace product injuries. Where relatively complete 
product coding exists over a long period of time, the analysis 
chould attempt to determine relative rankings on trends of the 
frequency, severity, and incidence of product-caused accidents. 
This information would facilitate the targeting of high-risk 
sectors for the application of preventive Drograms bv both 
industry and government safety regulatory agencies. 

The NEISS system is currently beins- redesigned to accommodate 
additional, and more accurate, product category reporting and 
coding in the existing network of hosDital emergency rooms. The 
expansion of the scope of consumer products injury analysis 
should include an attempt to determine whether the experience for 
the period from 1973 to 1975 is significantly changed by the 
modification and addition of new product codes. A further 
extension of the analysis presented in chapter III could include 
an analvsis of samples of product accident investigation reports 
compiled by the Consumer Product Safety Commission. These 
reports could provide details on the accident characteristics 



See footnote l f paqe VII-1. 



VII-7 



underlvins; consumer product injuries and, if disseminated 
regularly, might provide guidance to manufacturers in the 
development of consumer product liability prevention programs. 

SUGGESTIONS FOR INVESTIGATIONS OF OTHER POTENTIAL REMEDIES 7 

During the course of the analysis of remedies discussed in 
both Chapters IV and VI, a number of suggestions were received 
for consideration of other potentially useful remedies. Because 
of insufficient time and data, it was necessary to defer 
consideration of those suggested remedies. To facilitate the 
formulation of a program of possible research into several 
additional promising remedies to industry product liability 
problems, a brief discussion of underlying issues and possible 
research agenda is presented here. 

Several important potential remedies suggested for further 
investigation by both private and government research 
organizations are: 

• No-fault products accident compensation systems 

• Statutory remedies for limiting products liability 

• Development of universal loss experience rating systems. 

No-Fault System for Consumer 
Products Accident Compensation 

While the adoption of workers compensation as an exclusive 
source of recovery for workplace product-related accidents might 
resolve many of the present problems facing manufacturers in the 
capital goods sector, it does not alleviate the Droblems faced by 
producers of consumer products. It is insufficient simply to 



See footnote 1, paqe VII-1. 



VII-8 






state that adoption of tort reforms such as safety certification, 
control of legal fees, and statutes of limitations will resolve 
the problem for consumer products. It clearly would not since 
there would be a possibility of substantial increases in 
litigation in the consumer product liability area if third-party 
recoveries under workers compensation were significantly 
curtailed. Workers compensation, a form of third-party no-fault 
compensation, has been held ud by some manufacturers as a model 
for resolving; the problems posed by the lack of definite and 
scheduled means of providing compensation in the event of a 
consumer product injury. It is apparent from the results of the 
discussions and survey work of the Industry Study that this 
alternative offers some benefits. However, proposals for 
elective no-fault leave many manufacturers and interested parties 
with the nagging uncertainty that election does not alleviate the 
likelihood of litigation. 

The development of a consumer product injury reDarations 
system would involve research on the characteristics and risk 
profiles of consumer products, scope of coverage of such a 
system, and extent of first party coverage. Such a system would 
overlap other compensation systems, including any national health 
insurance schemes. Questions concerning the feasibility of a 
consumer products accident compensation system include such 
questions as whether a commercial insurance market exists for 
such a scheme and what would be the most effective means of 
regulating the system's oDerations and resolving disputes as to 
benefit coverages and entitlements. 



Research Areas for Design of a Consumer Products 

Q 

Accident Compensation Svstem 



There are several research issues for consideration that have 
surfaced during the course of this study that provide a basis for 



8 



See footnote 1, paqe VII-1. 



VII-9 



a research agenda by Federal and Drivate groups into the 
feasibility of a consumer products accident compensation system. 
Of primary importance is the need to acquire additional knowledge 
of the characteristics of consumer products' hazards and risks. 
Of specific importance is the determination of the 
characteristics of high risk consumer durables and linkages with 
changes in the state-of-the-art. Another basic area of inquiry 
is the age distribution of high risk consumer durables, and 
nondurables with latent risks such as pharmaceuticals, to 
determine the equitableness and scope of coverage for injuries 
and illnesses arising out of their manufacture, distribution, and 
use. In the area of medical devices, there is a fundamental 
concern of overlap between products liability and medical 
malpractice coverages and the extent to which matching 
requirements exist. There is also a Droblem of defining the 
range of accident compensation sources and overlaps, such as 
workers compensation, accident, health, temporary, and permanent 
disability Drograms, in relation to a possible consumer products 
accident compensation system. An additional concern would be the 
impact of a national health insurance scheme on the integration 
of coverages. Finally, there is the question of whether a single 
compensation source for both workplace and consumer accidents, 
perhaps on the model of the New Zealand Accident Compensation 
System, should reDlace the several multiple sources for 
workplace, Dersonal injury, and automobile accident reparations. 



Administrative Considerations for a Consumer Products 

q 
Accident Compensation System * 



Once the research and design issues were resolved, then the 
matter of the scope of coverages, the schedule of benefits, and 
integration of compensation sources could be resolved for 
operation of a consumer accident comDensation system. Of 
interest is the commercial market Dotential for a privately sold 



See footnote 1, paqe VII-1. 



VII-10 



and erovernment-administered system, not unlike workers 
compensation. That is, would there be sufficient volume with 
well-defined markets and underwriting characteristics to interest 
insurers to undertake the development of policy coverages and 
filing of rate applications with their respective State insurance 
commissioners or regulatory agencies. There is, of course, the 
question of how standards for benefits, administration, and 
resolution of disputes as to claims and benefit entitlements 
would be handled under such a scheme; and whether the current 
suggested approaches in the field of workers compensation reform, 
i.e., the application of possible Federal standards for State- 
administered programs, would be a desirable model. 

Statutory Definition of Useful Product Life 

A tort reform remedy was proDosed that would limit the 
liability of a manufacturer to the length of time a product was 
deemed to be useful as originally manufactured. Any such 
proposal would have to allow for an unambiguous method of dating 
(such as in an automobile warranty) and for a neutral resource to 
determine "useful" life. Product life has several different 
meanings depending on the principal purpose and perspective of 
the definition. Two factors that are relevant to product 
liability considerations and identification of neutral sources 
are : 

• Operational life 

• Depreciable and replacement value 

The operational meaning of product life is essentially, "When 

will it fail?" There is a large body of engineering and 

reliability knowledge to make estimates of mean times before 

failures, repair, periods between overhaul, etc. They usually 



10 See footnote l f page VII-1. 



VII-11 



take into account the design characteristics of the product and 
its life cycle of usage. Some of these measures are embodied in 
Federal standards as, for example, 2,000 engine hours between 
overhaul for certain aircraft engines, or 100 hours for light 
bulbs under Federal procurement specifications; or comparable 
definitions of a useful life. The combination of products and 
uses presents too large a number of variations to permit 
practical implementation . Anv standard of responsibility that 
used an operational def inition--no matter how well defined by a 
neutral resource—would reauire a companion system to monitor 
product use or misuse. Operational reliability is closely 
interrelated with use, and the manufacturer cannot control that 
within the fail-safe design limits. 

A second consideration that attends the reliability or 
operational definition of product life is the question, "What is 
the resDonsibility of the owner of a product when it has become, 
by definition, less safe than when it was made?" The aviation 
industry requires overhauls by certified shops and mechanics and 
provides inspection to assure compliance with operational 
reliability standards. The responsibility of the owner would 
have to be defined by law; that is also difficult. 

The accounting and tax definition of product life is: "When 
will it be depreciated?" These definitions are mainly oriented 
toward tax, investment, and replacement decisions. They allow 
some variability in their application, and apply from the date of 
purchase rather than from the date of manufacture. Asset 
depreciation ranges and class life tables have been established 
by the Office of Industrial Economics of the Internal Revenue 
Service as basic guidelines for depreciation of all capital 
goods. For example, metal forming machines have a class life of 
12 years with a minimum of 9.5 years. If the purpose of 
depreciation can be joined with the limitation of liability, 



VII-12 



these tables might serve as an existing neutral resource from the 
date of first nurchase. 

The economic life of selected consumer durables has been the 
subject of research. The Department of Transportation has 
published reports on the yearly cost of operating standard 
passenger automobiles for different uses. A study of life cycles 
costing of selected consumer appliances has been sponsored by the 
National Science Foundation and was carried out at the 
Massachusetts Institute of Technology. Results are not yet 
available. The Consumers Union laboratories make tests of the 
durability and safety of consumer products. The selection of 
products is determined by their editorial policy. At this time 
there is no general schedule for consumer product evaluation in 
the United States. 

In summary, useful product life, while a desirable means of 
limiting manufacturers liability, cannot be deemed to be feasible 
because only a limited set of neutral sources exist, such as 
Internal Revenue Class Life Tables for workplace products and 
operational use and maintenance standards for aircraft. In the 
instance of consumer products, the Pure Food and Drug Act, and 
related standards covering: food, drugs, and pharmaceutical 
products have established shelf-life datinet procedures defining 
the half-life of this class of products. However, neither 
operational use, economic life, nor life-cycle values exist from 
independent sources, other than limited data from university 
research centers and product testing laboratories for major 
consumer durables and nondurables. The only notable exception is 
automobiles. Despite these problems, the Industry Study suggests 
expanded research into the definition and development of product 
useful life schedules and standards. This may be accomplished 
under sponsorship of both mandatory and voluntary standard 
setting organizations. 



VII-13 



Investigate Feasibility 
of Universal Loss Experience Rating System 



11 



An important insurance-related remedy to the product 
liability problem involves the development of rating formulas 
that reflect the loss experience of small indivudual product 
manufacturers, rather than having; rates based entirely on 
aggregate data compiled by private insurance .statistical 
services. Large risks are typically subject to loss experience 
ratine; on either a prospective or retrospective basis. Small 
risks currently are subject to manual rates, with adjustments for 
coverages in other lines. During- discussions held with selected 
product manufacturers, they complained that there was no aoparent 
connection between levels of claims experience and rates charged 
during the past few years for product liability exposure. Hence, 
one means of resolving this problem would be to investigate the 
feasibility of establishing universal loss experience rating for 
tailoring; rate setting to actual loss experience and trends. -"-^ 



This potential remedy would have several desired effects and 
would involve some major development costs. It would eaualize 
the incidence of product liability insurance costs among all 
risks, instead of limiting experience or loss rating to the 
larger premium dollar volume risks. If developed correctly, it 
would reflect the positive loss prevention programs adopted by 
industry, along with the claims record of each respective firm 
insured. The costs of developing; such a system could be borne by 
property and casualty insurers through subscription fee 



11 



See footnote 1, paqe VII-1 



Universal loss experience rating is applied in other insurance 
lines such as workers compensation. Two exclusive State funds, 
in Ohio and Washington use such a rating system for all 
industrial accident risks. Further, universal experience rating; 
was a major recommendation of the National Commission on State 
Workers Compensation Laws. (See: Report of the National 
Commission on State Workers ' Compensation Laws, Washington, 



U.S.G.P.O., 1972.) 



VII-14 



surcharges paid by insurance companies who are members of the 
several statistical reporting services. State insurance 
commissioners, insurance statistical reporting services, and 
insurers themselves would be the principal parties involved in 
establishing and implementing revised loss reporting and 
recording standards and systems. 

These standards could be implemented through suggested models 
devised by the Federal Insurance Administration and the National 
Association of Insurance Commissioners. 

This suggestion for universal loss experience rating is in 
part being promoted by the redefinition of product loss 
experience reporting which is currently being undertaken by the 
Insurance Services Office (ISO) for stock capital underwriters. 



VII-15 



ATTACHMENT A 

GOVERNMENT ROLE IN STANDARD SETTING AND HAZARD PROTECTION 

OVERVIEW 

Chapter VI Dresented a discussion of a potential remedy for 
industry product liability problems -- the certification of 
compliance with standards of major Federal safety agencies. The 
prooosed safety certification programs would be directed at high- 
risk industrial and consumer products to facilitate the adoption 
of possible defenses under tort law. 

Industrial products under the scheme would be subject to a 
variety of possible certification means ranging from inspection 
of new production or original installations, to inspection of 
products either resold or modified. The principal federal agency 
that would be given lead responsibility for development and 
imolementation of safety certification programs involving 
products used in the workplace would be the Occupational Safety 
and Health Administration (OSHA) of the Department of Labor. 

Consumer product safety certification programs would be 
targeted at presently unregulated products, that is, those not 
subject to Federal food, drug, domestic, industrial and 
transportation,, toxic substances, hazardous or flammable 
materials safety laws. The principal Federal agency that would 
develop and implement the proposed safety certification program 
for unregulated consumer products would be the Consumer Product 
Safety Commission (CPSC). 

To provide an understanding of the various authorities and 
capabilities for standards development, enforcement and 
compliance, for both industrial and consumer products, a series 



A-1 



of five case studies of major Federal safety .agencies was 
prepared by the Industry Study. Each case study provides 
information on the basic legislative and regulatory authorities 
of each agency, procedures for standards development and 
enforcement, sanctions for violation of safety standards, current 
operating; characteristics of the agency and salient accident rate 
trends. The agencies reviewed in this appendix include, in order 
of presentation: 



Federal Aviation Administration (FAA) 



Food and Drug Administration (FDA) 



Consumer Product Safety Commission (CPSC) 



National Highway Traffic Safety Administration (NHTSA) 



Occupational Safety and Health Administration (OSHA) 



FEDERAL AVIATION ADMINISTRATION (FAA) 



Authority 



Under the Federal Aviation Act of 195b (49 U.S.C. 1301) a 
mandate is provided to promote the development and safety of air 
commerce. The FAA is empowered to issue minimum standards for, 
and pass approval on, the design, manufacture, performance and 



maintenance 
appliances . 



of aircraft, aircraft ensrines, propellers and 



Procedures 

(1) Before production of an aircraft, aircraft engine 
or propeller can begin, the manufacturer must obtain two 



A-2 



certificates from FAA, a type certificate and a production 
certificate. A type certificate is issued after the FAA 
determines, through its own tests or those reauired to be made by 
the applicant, that the design, construction, and performance 
meet all FAA standards and regulations and will ensure safe 
operation. FAA engineers evaluate all data submitted by the 
manufacturer, witness certain categories of tests, and 
participate in all flight tests. In the case of an engine, or 
propeller, the applicant for a type certificate specifies the 
kind of propeller or engine with which it will be used, and a 
comoatability determination is made at the time of the issuance 
of the certificate. 

Within 6 months of receipt of a type certificate, the 
manufacturer must apply for a production certificate. The 
certificate is granted after FAA determines by tests and 
inspection that the manufacturing process will produce aircraft, 
engines or propellers in conformity with the type certificate. 

A type certificate is not required for aircraft in the 
experimental category, which includes craft used for research and 
development, crew training, exhibition and air racing. Based on 
a recommendation from the National Transportation Safety Board, a 
rule has been proposed to remove exhibition and air racing from 
the "experimental" category (NPRM7M-29 ) . 

(2) An independent appliance manufacturer (one not acting as 
a supplier to a prime facility) can apply for a Technical 
Standards Order authorization (TSO), which is issued after FAA 
approves the design and auality control program of the applicant. 
The fact that an appliance used on an aircraft has received a TSO 
does not relieve the prime manufacturer of responsibility for 
compliance with the applicable standards. 



A-3 



If an appliance manufacturer acts as a supplier to a prime 
manufacturer, he need not obtain a TSO. The design and 
performance of the appliance is evaluated by FAA when the prime 
manufacturer applies for a type certificate for the aircraft on 
which it is used. 

(3) Before the completed aircraft can be put into operation, 
an air worthiness certificate must be obtained by the registered 
owner, or, in some cases, the manufacturer. A certificate is 
issued and registered with FAA if it is found that the aircraft 
conforms to the type certificate, and is in condition for safe 
operation. Any conditions on use or duration are listed on the 
airworthiness certificate. 

Sanctions 

It is unlawful for any person to operate in air commerce, an 
aircraft for which an airworthiness certificate is not in effect. 

Enforcement 

(1) Compliance: At the time of issuance of a production 
certificate, FAA inspectors are empowered to evaluate the 
applicant's manufacturing processes and reauire him to make 
alterations. However, for air transport manufacturers, 
inspection of each individual aircraft, an issuance of the 
airworthiness certificate, is the responsibility of a designated 
manufacturing: inspection representative (DMIR). The DMIR, who is 
an employee of the holder of the production certificate, must 
meet FAA promulgated qualifications and make quarterly reports to 
an FAA District Office inspector who monitors the DMIR's 
performance through a system of spotchecks. The great majority 
of DMIR's work full time in this capacity, but the Government 
assumes no liability for their negligence. 



A-4 



In the field of general aviation (aircraft weighing 12,500 
lbs. or less, or carrying 10 passengers or fewer), a delegation 
option authority (DOA) system is used, under which a manufacturer 
may choose to assume responsibility for all three forms of 
certification (type, production, and airworthiness). A Type 
Certification Board, chaired by FAA, certifies the products of 
non-DOA manufacturers. 

All aircraft in use must be inspected annually and approved 
for return to service by a person authorized under the FAA 
regulations to perform this function. Aircraft used for flight 
instruction, or in operation for hire, must be inspected after 
every 100 flight hours. Designated maintenance functions may be 
performed only by the holders of particular certificates, e.g. a 
mechanic certificate, or a repairman certificate (14 CFR 65). 
Air carriers are further required to have their maintenance 
procedures certified by FAA and must inspect the aircraft after 
50 hours in flight. 

Before a foreign, manufacturer can sell aircraft in the United 
States, a bilateral treaty must exist between the two countries. 
A treaty is agreed to if FAA establishes that the standards 
issued by the foreign aviation authority meet or exceed the level 
of safety of FAA standards. There is no U.S. certification of 
foreign air carriers. 

(2) Defects: The holder of a type certificate (14 CFR 21.3) 
or a TSO authorization (14 CFR 37.17) is required to report to an 
FAA Regional Office within 24 hours the occurrence of one of 13 
listed events (e.g., fire, engine exhaust system failure, toxic 
gas accumulation, brake system failure, etc.). Information on 
maintenance service difficulties is collected by the Flights 
Standards Maintenance Analysis Center, which analyzes the data to 



A-5 



SDot trends in malfunctions, and defects in need of immediate 
correction . 

The primary source of information on safety-related defects 
is the Manufacturers Service Bulletin, by which the manufacturers 
notify purchasers and users of: (1) unsafe or potentially unsafe 
conditions, (2) design improvements, (3) ODtional equipment, and 
(4) information uniaue to a particular user. Of the numerous 
Manufacturers Service Bulletins (for example, 6,000 have been 
issued for the Boeing 707), most are not safety related. In the 
field of air transportation, the bulletin is evaluated by a 
Designated Engineering; Representative (DER), an employee of the 
manufacturer, or a private consultant serving; as an FAA 
representative. The data on which a Manufacturers Service 
Bulletin is based is not retested by FAA, but the agency monitors 
the DER's Derformance through spot checking. 

In some cases, an air carrier may discover a defect through 
its maintenance program, and issue an instruction for its 
correction. When an FAA insDector on the carrier's premises 
reports this information to the Washington office, an Alert 
Bulletin may be issued to all field inspectors (in 1975, there 
were 150 inspectors) who then pass it on to other carriers using 
the same aircraft. Pressure from the air carriers may then 
result in the issuance of a service bulletin by the manufacturer. 

If, on the basis of information from the above and other 
sources FAA determines that an unsafe condition exists and is 
likely to exist or develop in other products of the same type 
design, an Airworthiness Directive is issued, following the 
rulemaking procedures (14 CFR 39). Airworthiness directives, 
made mandatory by incorporation into the regulations (14 CFR 
39.13), specify the type of correction required and the time 
limit within which it must be performed. The burden of 



A-6 



compliance rests with the holders of the airworthiness 
certificates, and, in the case of air carriers, economic impact 
must be considered by FAA in setting the compliance date. 
Monitoring is done by routine examination of the air operator's 
log book and sporadic FAA inspection. There is no requirement 
that an airworthiness certificate holder notify FAA directly that 
a correction has been made. However, failure to comply with an 
airworthiness directive is grounds for revocation of the 
airworthiness certificate, through court action. 

The vast majority of airworthiness directives are based on 
Manufacturers Service Bulletins (in 1975, each of the 447 
directives issued incorporated in original or modified form at 
least one service bulletin). 

Standards 

FAA standards are developed by the Flights Standards Service 
and issued by use of the rule-making procedures with an 
ODDortunity for both industry and voluntary standards 
organizations to submit proposed new standards. A standard 
developed by a voluntarv organization is not always retested by 
FAA, but the data and specifications on which it is based are 
subjected to an engineering evaluation. Frequently, an FAA 
representative works with the outside organization, but even if 
there has been participation in the development of a standard, it 
is not necessarily adopted, or may be adopted in a modified form. 
The decision to issue a new standard is based on information from 
reports of accidents, malfunctions and defects, proposed design 
chances by industry, and in-house proposed changes. 

In 1974, FAA established a Biennial Airworthiness Review Program 
in the Flight Standards Service because the piecemeal rulemaking; 
procedure had been found to be inadeauate to deal with a rapid 



A-7 



growth in technological advances. The biennial program, with 
participation by foreign governments, the aviation industry and 
the general public, provides for a review of the Federal Aviation 
Regulations (FAR's) on certification procedures and airworthiness 
standards. As a result of the first conference, seven rules were 
Droposed, amending existing standards, and establishing a system 
of "equipment deviation lists" for general aviation. 

The following organizations contribute to standards in the 
field of aviation: 

SAE (Society of Automotive Engineers) 

RTCA (Radio Technical Commission of Aeronautics) 

ICAO (The International Civil Aviation Organization is 
primarily concerned with traffic and security matters, but is 
beginning to consider flight characteristics) 

GAMA (General Aviation Manufacturers Association) 

AIA (Aerospace Industries Association) 



ADMA (Aviation Distributors and Manufacturers Association) 

EAA (experimental craft) The Soaring Society of America 
( gliders) 

Airworthiness standards and regulations are collected in the 
following parts of 1*1 CFR: 



A-8 



Standards 



Part 23: general aviation 

Part 25: air transport 

Part 28: transport rotorcraft 

Part 31 ' manned free balloons 

Part 33: aircraft engines 

Part 35: propellers 

Part 37: TSO standards for appliances 
Regulations 

14 CFR 21.11-21.53: Type certificate 

14 CFR 21.131-21.165: Production certificate 

14 CFR 21.171-21.199: Airworthiness certificate 
Selected Operating; Statistics 
In the fiscal year 1975, FAA : 

• Issued 151 type certificates (35 aircraft, 34 engines, 
82 propellers) . 

• Conducted 300 audits to check compliance with 
airworthiness standards. 



A-9 



Accident Rate Trends for 1974 
General Aviation: 

• Fatal accidents decreased by 3 percent from the 
1969-73 average. 

• Accident rate (per 100,000 miles flown) decreased 
17 percent from the 1969-73 average. 

Air Carriers : 

• Fatal accidents increased M.65 percent from the 
1969-73 average. 

• Accident rate (per 100,000 miles flown) decreased 
6.7 percent from the 1969-73 average. 

FOOD AND DRUG ADMINISTRATION (FDA) 

Authority 

The Food and Drug Administration's regulatory 
responsibilities over the human drug market stem from the express 
rulemaking authority granted for the "efficient enforcement" of 
the Food, Drug, and Cosmetic Act which was enacted and amended in 
part to insure the safety and effectiveness of all prescription 
and nonprescription drugs moving in interstate commerce (21 
U.S.C. 321 et. seq.). 

The Act makes it unlawful to cause, manufacture, deliver, or 
receive for sale "adulterated" or "misbranded" drugs, and 
prohibits the introduction into the consumer market of any 
unapproved new drug. 



A- 10 



Procedure 

To enforce the Act, the FDA establishes and applies SDecific 
standards for the testing, composition, processing; , labeling, and 
use of all manufactured drugs. FDA's enforcement scheme consists 
of a combination of statutory mechanisms including injunctions, 
seizures, and prosecutions and agency promulgated "recall" 
procedures . 

Mandatory Standards 

Certification of insulin and antibiotic drugs 

Pursuant to the FDCA, the FDA has promulgated regulations 
which set forth strict composition and testing methods for 
insulin and antibiotic drugs. Drugs which fall under either of 
these two classes must obtain FDA certification or are deemed 
"misbranded" under the Act. Mandatory standards of identity, 
strength, quality, and purity, as well as testing methods, are 
applied to the drug, batch by batch, before they are certified. 

During 1975, tests on 21,498 antibiotic batches were 
conducted by FDA. Of these tested, 159 failed to receive the 
necessary certification. All of the 319 insulin batches tested 
for 1975 were certified. The agency continues to monitor these 
approved drugs for safety and Quality by means of a oost- 
certification surveillance program. 

Good manufacturing practices 

Drugs are deemed adulterated and in violation of the FDCA 
whenever they are manufactured, processed, packed, or held 



A-11 



contrary to "current good manufacturing practice" as defined by 
FDA regulations. 

These mandatory minimum standards which apply to the 
buildings, equipment, personnel, and components, as well as to 
nroduction, packaging, laboratory and recording procedures, 
provide a means of agency control over drug quality before drugs 
are produced. Current Good Manufacturing Requirements are issued 
and revised from time to time by FDA for specific types of drug 
products, either individually or by class. While CGMPs apply 
eaually to both prescription and nonprescription drugs, the 
higher the risk associated with the drug, the more stringent are 
the manufacturing practices required of its producer. 

The objective of the CGMP's, as stated by the Director of 
Compliance of the Bureau of Drugs at FDA, is "to assure one 
standard for all drug products, one standard of quality and 
purity and efficacy, that standard beiner the highest attainable 
within the bounds of the capacity of the Agency and of the 
industry." 

FDA maintains various contacts with the affected industry 
during the development of the s;ood manufacturing Dractices, and 
continues to consider industry as well as public and government 
input regarding the practices by means of inviting comment with 
the publishing of proposed GMP's in the Federal Register. The 
National Association of Pharmaceutical Manufacturers, the 
Pharmaceutical Manufacturers Association, the Toilet Goods 
Association and the Proprietary Association are among those who 
advise and comment in the process of establishing; these quality 
control standards. 



A-12 



Misbranded drugs-labeling 

Both safety and efficacy of drugs are measured in terms of 
the claims made in their labeling. in this regard, labeling 
reauirements under the FDCA and FDA regulation are mandatory 
safety standards. For example, an approved dru<? which is not 
recognized by an official compendium is adulterated under the Act 
if its strength differs from, or its purity or auality falls 
below, that which it purports or is represented to possess. 

Both prescription and nonprescription drugs are deemed 
misbranded if their labels are false or misleading in any 
particular. Over-the-counter drugs are subject to mandatory 
standards which require interpretative warnings to consumers as 
to composition, proper dosage and use, and any cautions needed 
for the protection of the user. Prescription druus, or those 
which are not safe enough for self-medication purposes, must be 
accompanied by package inserts containing the quantitative 
formula, and a summary of the side effects, contraindications, 
and effectiveness. Prescription drugs must also bear the Rx 
legend which cautions against dispensing the drug without a 
physician's prescription. 

Voluntary Standards 

Quality, purity, testinsr standards-official compendium 

A drug is adulterated under the FDCA and subject to FDA 
enforcement if it is recognized in an "official compendium" but 
its strength differs from, or its quality or purity falls below, 
the standards set forth in such compendium. Further, the 
determination as to the strength, auality, or purity must be made 
in accordance with the tests or methods of assay set forth in the 
compendium . 



A-13 



The official compendium is a book of drug standards published 
by the United States Pharmacopeia and the National Formulary. 
Both the Pharmacopeia and the National Formulary include 
standardized drus: nomenclature, standards of strength and purity 
for selected drugs, dosage standards, and the provision of tests, 
assays, and material standards of reference required to 
demonstrate compliance with the published specifications. 

The U.S. Pharmacopeial Convention is comprised of voluntary 
reDresentatives of the medical and pharmacy colleges of the 
United States, medical, pharmaceutical, and trade associations, 
and certain governmental departments. A committee of Revision 
issues a revised compendium every 5 years. Committee members 
must have an expertise in a particular branch of medicine, 
pharmacy, or the allied sciences. 

The National Formulary is sponsored by the American 
Pharmaceutical Association. 

To the extent that the U.S. Pharmacopeia is a voluntary, 
nongovernmental entity, its published standards for drug quality 
and testing are voluntary standards. However, the fact that 
these standards are incorDorated by reference in the FDCA, and 
enforced by the FDA, is an example of the use of voluntary 
standards as the basis for mandatory standards. 

The statute gives the FDA veto power over the testing and 
methods of assay as standards set forth in an official compendium 
whenever in the judgement of the FDA those standards are 
insufficient for determining strength, quality, or purity of the 
drug at issue. This has never happened however, as the Act also 
provides that any dissatisfaction with the comDendium standards 
be brought to the attention of the Committee of Revision, which 
would then modify tests when necessary. 



A-1M 



Enforcement 

FDA is statutorily empowered to take legal action against 
violators of the FDCA in one of three ways. The agency may 
proceed in U.S. District Court for an injunction against the 
manufacturer, take action pursuant to a libel for condemnation to 
seize the adulterated or misbranded drug, or recommend that 
criminal action be instituted by the Justice Department against 
the violator. (Regulations promulgated are compiled in Part 21 
of the CFR. ) 

In addition, FDA is generally granted the authority to 
promulgate regulations for the efficient enforcement of the Act. 
Under this authority, the agency has developed its Droduct recall 
system which constitutes the bulk of its enforcement efforts. 
For example, during fiscal years 1972-75 there were a total of 25 
injunctions, 445 seizures, and 29 prosecutions instituted by FDA 
as compared to 2,733 recalls. Because the recall procedure 
obviates the need for court action, it is as a matter of official 
FDA oolicy "the first action of choice whenever a widely 
distributed violative product is encountered." 

Pendiner issuance of final recall regulations, the FDA 
Regulatory Procedures Manual governs the agency's handling of 
this enforcement procedure. 

A recall is a firm's voluntary correction or removal from the 
market of a nroduct which would alternatively be subject to legal 
action by FDA because of a violation of the FDCA. Recalls may be 
either FDA initiated or firm initiated without an explicit 
reauest from the agency for such action. 

FDA has divided recalls into three classes: class I recalls 
are those situations "in which there is a reasonable probability 



A- 15 



that the use of, or exoosure to, a violative product will cause 
serious adverse health consequences or death"; class II recalls 
are those "in which the use of, or exposure to, a violative 
product may cause temporarv or medically reversible adverse 
health conseouences or where the probability of serious adverse 
health conseouences is remote"; and class III recalls occur when 
"the use of, or exposure to, a violative product is not likely to 
cause adverse health consequences." 

The scope of the recall is dictated by its designated 
classification. Class I recalls receive top FDA Driority (there 
were 7 in FY 197U, 8 in FY 1975). The product is removed from 
the market down to the consumer level, a oublic warning is issued 
in the press, notice of the recall is published in the FDA Weekly 
Enforcement Reoort and effectiveness checks are carried out by 
the agency to insure complete removal of the drug from the 
market. Class II recalls are to the retail level, a press 
release is issued, notice is Dlaced in the Weekly Report and the 
procedure is checked for effectiveness according to the severity 
of the harm associated with the drug. Because the harm 
Dotentially is deemed remote in a class III recall, the depth of 
the recall extends only to the wholesale level and notice of the 
recall is published in the Weekly Report. 

The impetus for FDA initiated recalls is usually the receipt 
by the agency of information from scientists or consumers that an 
adverse reaction has been identified with a certain drug. FDA 
reviews the information, alone 1 with all relevant data, and 
inspects the manufacturer's plant to determine the cause of the 
suspected defect. If the drug is determined to be defective, FDA 
recommends a recall to the firm in lieu of a more embarrassing 
legal action. The Bureau of Drugs assigns a classification to 
the recall based on the conclusions of the Bureau Recall Unit 
which are reported in a "Statement of Hazard". Detailed 



A-16 



information is then disseminated to FDA District and Regional 
Offices, and State and local health officials to aid in the 
removal of the product from the market. Effectiveness checks are 
conducted by either FDA and/or industry representatives pursuant 
to specific procedures outlined in the manual. 

Regulatory letters 

In the further attempt to obtain voluntary compliance with 
safety and efficacy requirements, FDA has greatly exDanded its 
use of the "regulatory letter" in the last 2 years. These 
letters are formal legal warnings used to advise manufacturers 
that specific sections of the druer law have been violated. The 
recipient is given a stated time within which to take corrective 
action before legal sanctions are pursued by the agency. 

Operating Statistics 

Allocations of FDA Funds spent on Human Drug Safety in 
percentages and in thousands of dollars for fiscal years 1974 and 
1975: 



Year 

1974 
1975 

1976 (projected) 
FDA Regulatory Actions — Human Drugs: 



Recalls Seizures 

1974 602 (includes 49 

7 class I re- 
calls) 

1975 432 (includes 46 

8 class I 
recalls) 



Percent 


Value 


22 


41 ,294 


23 


45,901 


24 


49,256 



Prose- 
cutions 



A-17 



Import samples analyzed, wharf examinations, and imported 
product--not detentions for human drugs: 



Wharf 
Detentions 


Import 


Analyzed 


Samples 
Examinations 


1974 


769 


878 


1,652 1 


1975 


1,090 


-1,906 


2, 132 1 



1 



Includes animal drugs and feeds, and biologic detentions. 



Domestic Inspections and Samples Analvzed--Human Drugs: 

Inspections Samples Analyzed 



1974 6,896 

1975 6,717 

Petition and Application Processing: 

New Drug 
Applications 
FY 74 FY 75 



In review, beginning 
of period 


208 


142 


Receipts 




333 


338 


Actions taken 




41 3 3 


333 


In review, end 
period 


of 


142 2 


147 



9,338 
8, 182 



Investigational 
IND Applications 
FY 74 FY 75 



3,732' 


4,212 


342 


818 


1,184 


1,496 



4,212 



1 



4,360 



1 



Number of active INDs . 



Inventory adjustment of plus 14. 
Number of NDAs approved were 85. 
Number of NDAs approved were 71. 



A-18 



CONSUMER PRODUCT SAFETY COMMISSION (CPSC) 

Authority 

The Consumer Product Safety Commission enforces five safety 
laws, the most comprehensive of which is the Consumer Product 
Safety Act (CPSA), enacted in 1972 (P.L. 92-573). 

The purposes of the law are stated as protecting the oublic 
against "unreasonable risks of in.iury"; helping consumers 
evaluate comparative safety of products; developing; uniform 
safety standards and minimizing conflicting state and local 
regulations; and permitting research into causes and prevention 
of product-related accidents. 

The controls in the law apply to more than 10,000 "consumer 
products." These are defined as articles--or their comoonents-- 
for sale to or use by a consumer in or around a residence 
(including temporary ones such as hotels) or school, in 
recreation, "or otherwise." 

It is not necessary that a product actually be sold to a 
consumer for it to be regulated under the Act, and items ranging 
from patio doors and aluminum wiring to artificial football turf 
can come under CPSC jurisdiction. The Commission also has 
authority over products distributed as samples or gifts, and 
leased merchandise. 

The statute does not cover articles which are sold orimarilv 

to industrial or institutional buyers. But if a seller of 

industrial items fosters their sale to or use by consumers, the 
products may lose exempt status. 



A-19 



Not covered by the Act are specified items--motor vehicles 
and equipment, aircraft, boats, foods, drills, cosmetics, and 
medical devices—controlled by other Federal agencies. Also 
exempt under the Act are tobacco, firearms and ammunition. 

The law applies to manufacturers, distributors, retailers, 
and importers. 

PROCEDURE 

Standards 

When the Commission seeks to eliminate "unreasonable risks of 
injury" from a consumer product, it can promulgate a mandatory 
safety standard. This can apply to a product's performance, 
composition, design, construction, finish, packaging or labeling. 
If the Commission determines that a standard which has been 
issued or adopted bv a qualified organization can reduce risks of 
injury, CPSC may propose such a standard as its own. 

This permits government to use existing voluntary standards 
that are adequate, but which may have been ineffective because 
they were not widely followed by industry. 

Unless it proposes an existing standard, the Commission must 
accept at least one offer from "technically competent" 
organizations to manage develoDment of a standard. An offeror 
need not have standards-writing exnertise or particular knowledge 
of the product involved. Universities and research laboratories, 
for example, could be found technically competent even though 
they may have had no experience concerning the product to be 
regulated . 



A-20 



An innovative provision permits CPSC to contribute to the 
offeror's cost in developing a standard. This is intended to 
encourage consumer croups to develop standards and to give 
orivate standards-writing organizations the funds needed to 
assure consumer participation in the development process. 

All standards must be supportable bv test data and generally 
must include test methods to measure comDliance with the rule. 
Offerors also are reouired to s-ive interested persons--including 
representatives of consumers—an opportunitv to participate in 
development of standards; and have to maintain records, which 
will be available to the public, on the development of proposed 
standards. The Commission is empowered to develop a standard on 
its own if it does not find a suitable offeror. 

To date, only one mandatory standard has been promulgated 
(for swimming - pool slides), and only five others are in the 
development stage (architectural elass, bookmatches, TV sets, 
power lawnmowers, and aluminum wirincr). 

Recalls 

One of the most potent parts of the Consumer Product Safety 
Act is the self-tattling provision [Section 15(b)] which reauires 
manufacturers, distributors, and retailers to notify CPSC when 
they learn of a "substantial product hazard." 

This is defined as a substantial risk of injury posed by (a) 
failure to comply with a Commission safety rule, or (b) a serious 
defect due to the number of defective products distributed, the 
severity of the risk, or the pattern of defect. 

Because no regulations were reauired to implement this 
provision, it took effect as soon as CPSC was activated in May, 



A-21 



1973. However, the agency has issued procedures to guide 
industry in complying with its requirement for a report within 2k 
hours after a "substantial hazard" is discovered. 

The notification rules aDply not only to products covered by 
the Act, but also to those regulated under the other statutes 
(Flammable Fabrics, Hazardous Substances, Poison Prevention 
Packaging, and Refrigerator Safety) enforced by CPSC, the agency 
has declared. It also has emphasized the reauirements apply to 
defective products made before the Commission was created, if 
information on the defect was obtained after May 14, 1973. 

Quality control failures--and many nationally known 
manufacturers and retailers — have been involved in 15 (b) reports 
to CPSC. The early notices covered a wide ranere of Droducts, 
including power mowers, TVs, ranges and ovens, bicycles, heating 
and air conditioning units, cigarette lighters, electric 
fireplaces, lamps, microwave ovens, oven cleaners, paint, 
hairdrvers, mattress Dads, electric drills, teakettles, glue, 
Christmas decorations, dishwashers, toy chests, ski boots, and 
children* s sleepwear. 

Notifying the Commission touches off a process that has a 
simple central goal--to get the hazardous products out of the 
marketplace. Sellers are requested to alert their customers and 
to seek to locate the defective items. Often, CPSC urges the 
company to issue a news release to call attention to the problem, 
and if the agency considers the situation exceptionally serious 
it alerts the media directly. (Even if no announcement is made, 
most information on 15(b) notices is available to reporters and 
others who inquire.) 

If a company succeeds in locating a reasonable number of the 
defective items within what CPSC considers adeciuate time, that 



A-22 



generally ends the case. But if the agency is not satisfied with 
progress--or if there is a disagreement over whether a 
"substantial hazard" exists — CPSC can start formal procedures. 

After a hearing, it may order sellers to ffive public notice-- 
including use of TV, radio, and newspapers — of the defect, and to 
advise by mail all known sellers or purchasers. The Commission 
also can order sellers to either repair the defect, reDlace the 
product, or refund the purchase price (less a reasonable 
allowance for use if a consumer had it more than one year) . 
Consumers also would be reimbursed for expenses in returning a 
defective product. 

In FY 1976, CPSC received 140 substantial product hazard 
reports, of which 57 were cases onened by the Commission itself. 

Voluntary Standards 

The CPSC has stated in its 1976 Annual Report that it 
expanded its efforts during FY 76 to provide assistance to 
organizations involved in the development of voluntary safety 
standards for consumer products. In a number of instances, the 
Commission staff has encouraged the development or revision of 
existing voluntary safety standards to address risks of injury 
associated with specific consumer products. 

The involvement of Commission personnel in voluntary 
standards development activities has been beneficial and 
effective. Since industry knows the technical aspects of its 
nroducts better than anyone else, the Commission believes it is 
reasonable to provide personnel, research support, and 
encouragement to standards committees and industry organizations 
willing to address risks of injury identified by the Commission. 
In some cases, voluntary standards activity has offset the need 



A-23 



for mandatory standards. For example, the Commission denied a 
petition to establish a mandatory safety standard for electric 
fans on the errounds that a recently improved voluntary standard 
was adeouate . 

Durins 1 FY 76, the Commission monitored or participated in 
voluntary standards development Dro/jects covering 32 different 
consumer nroducts, including aerosol products, hair dryers, 
ladders, and fire extinguishers. 

Two voluntary standards efforts deserve particular notice. 
Last year Underwriters Laboratories (UL) offered to develoD a 
voluntary standard for electric hedge trimmers. The experiment 
involved the accelerated development of a voluntary standard that 
would effectively address the risks of injury as identified by 
the Commission. The Commission agreed to participate in the 
development oroject, /jointly sponsored by UL and the Power Tool 
Institute, and involving representatives of manufacturers, 
distributors, consumers, and a recognized testing laboratory. 
The standard was developed within 10 months and published as a UL 
Standard . 

Another experiment, resulting from a reouest from the 
American Society for Testing and Materials, involved development 
of voluntary safety standards for bathtubs and shower stalls. 
ReDresentatives of the tub and shower, olumbing fixture, and 
bathroom accessories industries, consumers, and others 
reDresenting general interests produced five standards addressing 
bathtub and shower structure-related injuries. The standards, 
based on the Commission's NEISS data, relate to slipping on 
bathing surfaces, falling, and scalding. 



A-2U 



Enforcement 

Failure to reDort a "substantial hazard" to CPSC can subject 
the firms and executives involved to heavy civil and criminal 
penalties. Among the ways the Commission checks on whether it is 
receiving such notices is a review of accident data that 
indicates severe product defects. 

There are stringent penalties specified in the Act. 

Violations can bring civil penalties of up to $500,000 and 

criminal penalties as high as $50,000, imprisonment for one year, 
or both. 

Private parties also can play a role in enforcement, for the 
Act authorizes any person to sue in U.S. District Court to 
enforce a CPSC safety standard or ban, or a recall order. 

In addition, any person who is injured due to a knowing 
violation of a Commission rule may brins; a court suit for 
damages. The Act provides that compliance with CPSC rules does 
not force a firm from liability under common law. 

Data Collection 

The National Electronic Injury Surveillance System (NEISS) 
uses a network of telecommunications terminals at 119 hospitals 
to receive, daily, coded product-related injury data from the 
hospitals' emergency treatment deoartments. Through NEISS, the 
Commission obtains a statistically valid sampling of product- 
related (although not necessarily product caused) injuries 
treated each day in the nation's hospitals. From this samDling, 
the Commission estimates the total number of product-related 
injuries nationwide. 



A-25 



In FY 76, 412,000 injury cases were reported through NEISS, 
an increase of more than 15 percent over the previous year. In 
FY 76 the Commission staff made more than 400 visits to NEISS 
hospitals, to verify the accuracy of data reported and to train 
hospital staff involved with NEISS reporting. Based on the 
number of NEISS reports received, the Commission estimates that 
8,744,361 product-related injuries were treated in hospital 
emergency rooms throughout the United States in FY 76. 

The Commission selects some cases for in-depth study in order 
to learn more about how injuries happen. During; FY 76 the 
Commission conducted 4,472 in-depth investigations. 

Using data collected through NEISS, the Commission has 
developed the Consumer Product Hazard Index, a listing of product 
categories associated with injuries treated in hospital emergency 
rooms. In developing the index, three factors are considered: 
estimated number of injuries associated with a product; estimated 
severity of injuries associated with a product; and age of 
injured person. 

It should be noted that the index represents product 
involvement in injuries, but does not necessarily indicate a 
cause-effect relationship between the product and the injury. 

The Commission's death certificate data collection program 
has been in operation for nearly 2 years. In FY 76, the 
Commission received a total of 59,036 death certificates on 
suspected product-related deaths from 46 States, New York City, 
Washington, D.C., Puerto Rico, and the Virgin Islands. 

Because precise product ingredient information is needed for 
hazard evaluation, the Commission issued a Special Order in 
August 1975 that established a mandatory reporting requirement of 



A-26 



chemical consumer product ingredient data from 1,647 firms, 
covering; approximately 20,000 products. A trade association, on 
behalf of its members, sought a preliminary injunction to enjoin 
the Commission from collecting these product ingredient data. 
The District Court ruled in favor of the Commission; however, the 
case is pending on a motion for a permanent injunction. 

Formulations on 15,000 products have been collected and coded 
for computer storage. Access to these formulations will enable 
the Commission to estimate the hazards associated with various 
products, and to identify specific products or classes of 
products containing certain chemicals or chemical components. 

The Commission prepares hazard strategy analyses based on 
comprehensive information on product-associated injuries and 
hazards obtained from its hazard identification and assessment 
program. Hazard strategy analysis involves two principal types 
of research, specific product hazards are studied to determine 
the most appropriate approach to reducing the hazard. 
Background/methodological research involves long-term studies of 
a more general nature, such as how people are affected by 
chemical or physical agents. 

NATIONAL HIGHWAY TRAFFIC SAFETY ADMINISTRATION (NHTSA) 

Authority 

NHTSA administers the National Traffic and Motor Vehicle 
Safety Act (15 U.S.C. 1391-1431). It is empowered to issue 
mandatory minimum safety standards providing objective criteria 
for motor vehicle performance. The original standards issued in 
January, 1967 were based on "existing safety standards," but as 
of January, 1968 these were revised and reissued by NHTSA. By 



A-27 



April 1976, 50 standards had been issued: 26 in the Crash 
Avoidance Series, and 22 in the Crash Worthiness Series. 

Under the act, it is unlawful for manufacturers (including 
assemblers), distributors, dealers and importers to introduce 
into commerce any motor vehicle or item of motor vehicle 
eauipment not in conformity with the standards. 

Procedures 

The NHTSA program is one of self-certification under which 
the manufacturer or distributor is required to provide the 
distributor or dealer with the certification that the motor 
vehicle or item of eauipment conforms to all applicable federal 
standards. Regulations implementing the certification 
requirement describe the type of label on which the statement of 
conformity must appear, and its manner of permanent affixation. 
(Standards and Regulations are compiled in 49 CFR parts 552-582.) 
In several instances the "manufacturer" identified on the label 
can be someone other than the actual manufacturer of the 
completed vehicle: (i) if a corporation controls another 
corporation by which the vehicle is assembled, the controlling 
corporation may be named as the manufacturer; (ii) the 
manufacturer of a vehicle that is designed to be assembled 
without special machinery, but is delivered in unassembled form, 
may affix a label identifying itself as the manufacturer; and 
(iii) a trailer manufacturer who sells a trailer not of its own 
manufacture, may name itself the "responsible manufacturer." If 
a certified vehicle is altered before its first purchase, the 
original certification label must be retained, and an additional 
statement of conformity covering the alterations must be affixed. 

In the case of vehicles manufactured in two or more stages, 
the manufacturer of an incomplete vehicle who does not assume 



A-28 



responsibility for duties imposed by the Act is required to 
furnish the next, or final stage manufacturer a document stating 
(1) that the standards to which the vehicle will conform in its 
completed state if no alterations in specified components are 
made, (2) the conditions of manufacture under which the vehicle 
will conform to identified standards, or (3) that the design of 
the incomplete vehicle does not "substantially" determine 
conformity with each listed standard. The final stage 
manufacturer must complete the vehicle so that it conforms to 
either the standards in effect at the date of incomplete 
manufacture, the standards in effect at the date of completion of 
the vehicle, or those in effect at any time in between. Thus it 
is possible for part of a multi-stage vehicle to be in compliance 
with current standards, and part to be in complaince with 
standards since superseded. 

Enforcement 

Under the Act, NHTSA is empowered to conduct inspections and 
investigations of factories and warehouses, and to impound for up 
to 72 hours a motor vehicle involved in an accident. Compliance 
with the safety standards is monitored by the Office of Standards 
Enforcement, which buys new model vehicles as they are released 
and subjects them to a battery of tests. Among the criteria used 
in the selection of new models to be tested are: (1) results of 
previous testine: of similar models; (2) accident data, and (3) 
consumer complaints. After an instance of noncompliance with a 
standard becomes known, inspectors can be sent into the 
manufacturer's plant to check the quality control system and 
examine the test data on which the certification of compliance 
was based. An injunction can be obtained to prevent a 
manufacturer from releasing any stocks of a noncomplying or 
defective vehicle. 



A-29 



Recall 



(1) Manufacturers are reauired to notify NHTSA, and all 
dealers, owners and purchasers of a vehicle when noncompliance 
with a standard, or existence of a defect becomes known to them. 
Lists of first purchasers and known subsequent purchasers who 
hold warranties must be maintained by manufacturers of motor 
vehicles (49 CFR 573.6) and tires (49 CFR 574). 

(2) Any interested person may petition the Associate 
Administrator for Motor Vehicle Programs requesting a proceeding 
to determine whether an order should be issued requiring 
notification and remedy of a defect or instance of noncompliance. 
If, after a technical review of the petition and an opportunity 
for interested persons to submit views and evidence, the 
Associate Administrator determines that the petition should be 
"•ranted, a rulemaking proceeding is begun with an investigation 
by the Office of Standards Enforcement (noncompliance) or the 
Office of Defects Investigation (defect). (49 CFR 552) A defect 
that is determined to be "inconsequential," i.e., one that does 
not pose an "unreasonable risk" to traffic safety, can be 
exempted from the notice and remedy requirements on application 
of the manufacturer. On the other hand, if, in the course of an 
investigation an immediate risk is found, a consumer protection 
bulletin is issued. Regardless of whether a defect is discerned 
by the manufacturer or the Administrator, the manufacturer is 
required to file a defect information report with NHTSA (49 CFR 
573) detailing the vehicles affected and the remedy program to be 
initiated. Under the Act, the chosen remedy, whether repair, 
replacement, or refund, must be cost-free, unless the vehicle was 
bought more than 8 years before the notice of a defect (3 years 
in the case of tires) . Information on the progress or completion 
of notification campaigns is submitted to NHTSA in quarterly 
reports from each manufacturer. In the case of multi-stage 



A-30 



vehicles, compliance by either the incomplete vehicle 
manufacturer or a subseauent manufacturer is considered 
compliance by both. 

Standards 

Standards issued by NHTSA (49 CFR 571) incorporate by 
reference all "materials referred to in any standard." The 
voluntary standards so incorporated are most often those 
developed by SAE, ASTM, and ANSI. Voluntary standards are not 
necessarily retested by NHTSA, but in many cases, an employee of 
NHTSA works with the voluntary organization developing; a new 
standard. If a standard that has been incorporated by reference 
is later amended by its promulgating organization, any amendment 
to the NHTSA standard will be automatically updated to refer to 
the revision. However, the existing NHTSA standard is not 
amended simply to incorporate a revised voluntary standard, so 
that it is possible that the revision will never be picked up by 
NHTSA. Though voluntary standards may be incorporated in their 
original form (this is particularly likely in the case of 
identity and design standards) , the performance requirements 
imposed on the standards are developed entirely by NHTSA. 

The decision to issue a new standard is based on data from 
the states, police reports, multidisciplinary accident 
investigation files, and defect reports. Existing standards and 
testing methods of the voluntary standards organizations form 
part of the information base used by NHTSA in the development of 
new standards. The degree of hazard posed by a reported defect 
is one ingredient in the decision to issue a new standard; when 
defective engine mounts caused a large scale recall campaign, no 
new standard was issued because there were only a small number of 
actual failures occurring after an extended period of use. But 
the failure of accelerator control systems, whenever the system 



A-31 



failed and the decree of hazard was catastrophic, resulted in the 
development of a new standard. (49 CFR 571.124). 

NHTSA also has a "parts return program," under which 
independent repair shops voluntarily submit defective components 
to an NHTSA contractor for testing. 

Operating Statistics 

From January 1968 through December 1975, NHTSA tested 58,000 
pieces of equipment or components to 13 standards; and 738 
vehicles to 19 standards; with an accumulated failure rate of 5.9 
percent (down from 10.1 percent = 68/69) 

From 1966 through June 1976 there have been 2,094 recall 
campaigns, 300 (involving 24 million vehicles) influenced by 
NHTSA. Of the 217 defect recall campaigns (foreign and domestic) 
in 1975, 14.3 percent (cumulative percent since '66) were 
considered "Directly influenced" by NHTSA; as comDared with 4.4 
percent in 1969. The Dhrase "directly influenced" includes 
action taken by a manufacturer after he became aware of a 
prospective or impending NHTSA action. There have been 6 
campaigns ordered by NHTSA; one was set aside by a Federal 
District court, and two are still in litigation. 

In 1975 NHTSA went or was brought into court 15 times; 4 
times to enforce a recall action; 9 times by manufacturers 
seeking review, revocation, or exemption from safety standards; 
and twice by consumer and public interest grouos seeking; review 
of an NHTSA approved notification campaign, and withholding of 
funds from states not in compliance with highway safety program 
standards. In addition, 20 administrative enforcement actions 
were settled by accepting payments, ranging from $250 to $95,000, 



A-32 



in lieu of civil penalties through court action, 19 actions 
involved noncompliance , (failure to provide information). 

OCCUPATIONAL SAFETY AND HEALTH ADMINISTRATION— ( OSHA ) 

Authority 

The Occupational Safety and Health Act was passed by the 91st 
Congress and signed into law on December 29, 1970 (Public Law 91- 
596). It became effective on April 28, 1971. The Act requires 
safe and healthful working conditions for virtually every 
employee in the United States. The Secretary of Labor is 
reauired to set and enforce safety and health standards for 
businesses affecting; interstate commerce. 

Employers are reauired to furnish a place of employment free 
from "recognized hazards" and to comply with occupational safety 
and health standards, Section 5(a)(1)(2). Beyond this, however, 
employers must post notices, make investigations of their 
establishments and meet record-keeping requirements. 

Procedures 

The law provides specific procedures for setting standards. 
There are three varieties—interim , permanent and emergency. The 
interim standards were issued during the first two years after 
the effective date of the Act. They were "national consensus 
standards" or an "established federal standard." The interim 
standards could be adopted without the rulemaking procedures of 
the Administrative Procedure Act. 

The permanent standards development follows the rulemaking; 
provisions of the Administrative Procedure Act, which set forth 



A-33 



detailed procedures on promulgation, modification, or revocation 
of a standard. 

Emergency temporary standards may be made effective 
immediately upon publication in the Federal Register, subject to 
conditions — the Secretary must determine: (2) that employees are 
exposed to grave danger from exposure to substances or agents 
determined to be toxic or physically harmful or from new hazards, 
and (2) that such emergency standard is necessary to protect 
employees from such danger. Upon publication of such an 
emergency standard, the Secretary is required to commence a 
rulemaking: proceeding in which the emergency standard will serve 
as a proposed rule. A permanent standard must be issued to 
replace the emergency standard within six months. 

Variances from the standards are permitted if the employer 
can show that equal protection is provided. (Standards issued 
are compiled in 29 CFR, 1900 series.) 

Enforcement of standards is a dual process. The Labor 
Department makes inspections and issues citations. An 
independent Occupational Safety and Health Review Commission 
performs the adjudicatory functions. The Labor Department is 
reauired to make unannounced inspections, respond to legitimate 
complaints of hazardous conditions, and to permit a 
representative of management and employees to accompany the 
inspector during the inspection. 

After completion of the inspections, the Labor Department can 
issue citations and proposed penalties, and set specific 
abatement dates. The employer is required to post the 
citation(s) until the violation is abated. The employer does 
have the right to contest the citation(s) to the OSH Review 
Commission within 15 days or the citations and/or penalties 



A-34 



become a final order of the Review Commission and are not subject 
to review by any court or agency. 

If there is a contest, the Review Commission affords the 
parties an opportunity for a hearing; and then issues an order 
(based on findings of fact) affirming, modifying, or vacating the 
Secretary's citation or proposed penalty. The Commission also 
may grant other appropriate relief. Any person adversely 
affected or aggrieved by an order of the Commission may obtain 
review by filing a petition in a Federal Court of Appeals within 
60 days after issuance of the order. The Secretary may also 
appeal . 

There are also provisions for the Secretary to determine the 
category of violation: deminimus, nonserious, serious, repeat 
and wilful. Monetary penalties are as follows: For wilfully 
violating the law, an employer may be assessed a civil penalty of 
not more than $10,000 for each violation. For a serious 
violation, an employer shall be assessed a civil penalty of up to 
$1,000 for each sucjn violation. For a nonserious violation, an 
employer may be assessed a civil penalty of up to $1,000 for each 
violation. With some exceptions, Congress in the Appropriations 
Act for FY'77, attached a rider forbidding penalties being 
assessed for nonserious violations unless 10 or more are found. 
Also excluded are firms of less than 10 employees from 
inspection. There are additional penalties for failure to 
correct or for wilfully violating a standard that results in 
death to an employee, or for making false statements. 

EXPERIENCE UNDER THE LAW TO DATE IN STANDARDS SETTING 

To date over 40,000 specific standards have been issued under 
four categories: General Industry 29 CFR 1910, Construction 29 
CFR 1926, Maritime Standards, 29 CFR 1915 to 1919, and 



A-3 5 



Agriculture 29 CFR 1928. If there is no specific standard, the 
General Duty Clause of the Act [Section 5(a)(1)] applies. 

The standards in force came from several sources. The 
interim standards issued during the first two years were based on 
safety and health standards previously adopted under the Walsh- 
Healey Public Contacts Act, the Service Contract Act and the 
Construction Safety Act, and adoption of certain national 
consensus standards developed by such organizations as the 
American National Standards Institute, the National Fire 
Protection Association and the American Society for Testing and 
Materials. In the years since, the majority of these voluntary 
standards (national consensus standards) have been modified to 
take out the permissive language and are mandatory. 

Additional standards are developed as follows: If the 
Secretary determines that a standard is necessary, he appoints an 
advisory committee that works with staff to develop a draft 
standard. This then is cleared through numerous sources such as 
the ultimate user, the employee's representative (generally a 
union), trade associations and so forth to obtain a consensus. 
If necessary, a public hearing is held. Enforcement activities 
sometimes produce areas where standards may be needed or 
modified. Two major emergency standards have been issued, one 
for vinyl chloride and the other for diving. The VC standard was 
decided on when a manufacturer reported unusually high levels of 
cancer developing among employees exposed. The diving standard 
was based on a petition from a union stating unsafe conditions. 

A major concern in standards development is in the health 
area. Most of the standards adopted during the early days of the 
/Vet were safety rather than health. Health standards are 
developed based on input from the National Institute of 
OccuDational Safety and Health (NIOSH) which was also created 



A-36 



under the Act to provide necessary research for standards 
development. NIOSH is under the Department of HEW, and develops 
criteria documents with all known information about a specific 
hazardous condition. These criteria documents are then 
transmitted to the Labor Department for consideration in 
promulgating a standard. The Labor Department then proceeds to 
develop and promulgate a standard. 

As stated earlier, safety and health standards are all 
directed to the ultimate employer. Thus the standards place the 
legal burden only on the employer or user of eauipment, not on 
the original manufacturer. For example, a Dunch press may be 
designed and manufactured by Company A, who sells the press to 
Company B for use. OSHA can inspect Company B and find a 
defective press, i.e.: no point of operation guard; and the 
citation and penalty goes to Company B, the current user, not to 
the original manufacturer. 

ENFORCEMENT STATISTICS OF OSHA 

During the 5 years since the inception of the Act, OSHA has 
developed a field force of nearly 2,000 and entered into 
agreements with 23 States and territories to take over 
enforcement of the Act from the Federal Government. Under 
Section 18 of the Act, a State or territory may enter into an 
agreement, with monetary assistance from the Federal Government, 
to develop standards and enforce within the state or territory 
the reauirements of the Act. 

From its inception on April 28, 1971, through December 1975, 
OSHA has made 280,502 inspections resulting in 197,732 citations 
alleging 1,033,678 violations, with proposed penalties totaling 
$26,483, 13^. 



A-37 



In 1975, OSHA made 88,801 inspections with 21 percent of the 
establishments estimated to be in compliance. 66,159 citations 
were issued with 361,750 alleged violations, with proposed 
penalties of $9,542,181. Twenty-one percent of the 
establishments were considered in compliance. 

In 197^", OSHA made 80,262 inspections resulting in 58,383 
citations issued alleging 308,802 violations with penalties of 
$7,374,811. Twenty-three percent of the establishments inspected 
were in compliance. 

In 1975, less than two percent of the violations cited were 
considered "serious." In 1974, approximately one percent of the 
violations were rated "serious." 

In 1975, 4.5 percent of the citations were contested to the 
Review Commission. In 1974, approximately 3 percent were 
contested . 

Through August 1976, OSHA conducted 57,085 inspections, 
issued 46,896 citations and alleged 237,289 violations with 
penalties assessed of $5,969,299. 

OSHA's Management Information System is operational, but 
studies have not been completed on a breakdown of violations by 
industry exceDt in so called "target" industries. 

State plans are in the developmental stage in 23 States and 
territories, but only three are totally operational. However, 
States are making inspections under Federal monitorship. 
Indicative of their output are figures for the last one-half of 
1975. Approximately 22 States made 72,448 inspections with 
21,967 establishments in compliance. They issued 191,098 alleged 
violations and proposed penalties of $2,747,033. 

In the first auarter of 1976, States made 38,492 inspections 

and 11,942 establishments were found in compliance. 101,083 

violations were alleged and proposed penalties of $1,466,866 were 

assessed . 

A-38 

4 U. S. GOVERNMENT PRINTING OFFICE : 1977--240-848/149 



PENN STATE UNIVERSITY LIBRARIES 




ADDDDTDTbLGQ